Crusty old suburban mortgage broker dude Ron Butler did some math Wednesday afternoon. That was after the central bank raised rates for the fifth time, taking its benchmark from one quarter of one per cent (Covid money) to 3.25% on its way to, oh, 4% maybe.
Enough with talk of monetary policy, Butler said. “Let’s do some math with real life situations.”
Example: a home equity line of credit (HELOC) for three hundred grand on which the owner makes interest-only payments (like most people). In March that monthly was $733. This week it rose to $1,469. Ouch.
“It’s the pure double I have posted about,” the veteran lender said. “Shit got real today for HELOC holders.”
By the way, Canadians now have $170 billion in HELOC debt, virtually all of it at floating rates. A significant amount of the money was borrowed against inflated residential equity (now deflating) to buy ‘investment’ rental real estate, or squeeze out downpayment cash for Junior. Yes, real estate financing more real estate, creating a ballooned family exposure to one asset class. And now higher rates challenge it all.
What about mortgages?
A variable-rate home loan of $500,000 with an adjustable mortgage has seen payments rise from $1,124 a month to $2,506. In general, the most recent increase means another $40 a month per hundred grand borrowed. And the stress test for new buyers moves up to 7%. If you can’t clear that hurdle, you ain’t buying.
The majority of borrowers with VRMs have static payments, but they’re still deeply affected. As rates rise the portion of a monthly payment allocated to interest also shoots higher. It means less and less debt is paid off during a tightening cycle, and at renewal you owe far more than anticipated – an amount which must be renewed at higher market rates.
In fact, almost 100,000 households are quickly reaching the point where their ultra-low pandemic variable mortgages of 1.5% or less no longer have payments large enough to cover this increased financing cost. So at this ‘trigger’ point their payments inflate, with all the extra going straight to interest. RBC figures the average monthly bump will be $200.
Economists estimate it takes about a year for higher rates to be fully reflected in the economy and how people spend, behave and think. So, clearly, we’ve only started on this path. Believing real estate will rebound in October (as Re/Max is trying to tell us) is folly.
Mortgage broker/celeb blogger Rob McLister says flatly there’s more to come – as the CB suggested in its statement this week. He sees at least 50 beeps more when the benchmark rate’s reviewed again October 26th and December 7th. Others, as we’ve reported, think the bank rate will have to move towards 6% before inflation is crushed – taking a few years. In such a scenario, the stress test would approach 10%. Without deep, universal price decreases, the housing market would lock down.
But that’s extreme. Let’s deal with the reality of this week.
RBC says rates at today’s level are already “pushing buyers to the sidelines,” especially in the LM and the GTA. “We see the downturn intensifying and spreading as buyers take a wait-and-see approach while ascertaining the impact of higher lending rates,” the bank’s economist states. “Canada’s least affordable markets Vancouver and Toronto, and their surrounding regions, are most at risk in light of their excessively stretched affordability and outsized price gains during the pandemic.”
In Vancouver the big pressure is coming in the burbs. “The sharp rise in interest rates and partial return to office are evidently causing buyers to more significantly reprice properties away from Vancouver’s urban core,” the bank says. Meanwhile in Toronto the average detached house has shed $210,000 since March with outsized chops happening in Halton and Durham.
But we should expect more, the pointy heads tell us, now that the Bank of Canada and the Fed (and the ECB) have made it clear they’re not going to fold. All that monetary (cheap rates) and fiscal (CERB etc.) stimulus needs to be unwound. So the reasons house prices went nuts (Covid cocooning, WFH, urban flight, 2% mortgages, subsidy cheques) will not be replicated. It was a one-off world. It’s over. And, no, real estate is not unaffordable because there’s too little of it. That will soon be evident.
Could the national house price decline in Canada surpass that of the pre-2008 US housing crash? More than the historic plop that hit Toronto during the 90s recession? Deeper than even this pathetic (but prescient, and nicely-muscled) blog has suggested?
Yup. That would be north of 30%. So we’re a third there.
About the picture: “Here is a picture of our dear cat Moses who passed away last November,” writes Jarad. “He was an indoor rescue who spent the first few years of his life in an apartment, so once we had a backyard for him he loved nothing better than to go outside with his leash and harness (and try to catch squirrels or butterflies). He died far, far too young from an aggressive liver cancer at only 6.25yrs old and he has left quite the hole in our hearts. I would love to see his face show up on your blog.”
104 comments ↓
But but but….we were told Real Estate ALWAYS goes up.
The Bank of Mom and Dad is gonna be left holding the burning paper bag of dog poop while all the politicians, salesman and banks scramble for cover.
Look on the bright side.
When the kids AND the parents lose both their homes…..there’s no chance the kids will be able to move back into the basement.
When you do the math with the housing thingy
You can honestly say
Dogs are Great
beers good
people are crazy
Soon people will wish they had never ever allowed the price of real estate to rise past mid 1970s levels. Rates may have to rise far higher to bring that about. There is much brainwashing and misplaced optimism and greed to overcome.
@#127 Wrk.dvr
“Hey Furz, Vienna is voted world’s most liveable city.
Imagine all the Ponze’s over there!
++++
A nation full of them.
The horror…the….horror.
House price recalibration through rate hikes!
Early post, Garth? Enjoy the weekend.
“A man who wants a dog wants immediate gratification and someone who’s very dependent on them. Because dogs understand that they can’t exist without you.”
“But cats on the other hand, they can deal with someone. If a man has cats, then he can be independent, that he’s not as, you know, needy as a dog lover that needs that tail wagging as soon as you come in the house.”
Susan Sarandon on The Tonight Show
https://www.youtube.com/watch?v=PBd-JNESdmo
First!
Is it finally actually time for debt pigs to pay the piper?
The unravelling ain’t gonna be pretty.
Batten down the hatches.
It’s gonna be epic.
Correction? Your example of a $500K mortgage needs tweaking I believe. $1124 to $2506 is more than a 50% increase (unless somehow I’m reading it wrong).
So, this ‘trigger’ point. Am I correct in thinking that means the actual payment will increase by $200+ per month immediately, or am I misinterpreting? Presumably the mortgage lender would inform clients that they have to pony up more cash by X date? Also, if clients simply haven’t got the extra, what happens then? Obviously nothing good financially.
Pursuant to their mortgage contracts, it is an immediate change. – Garth
A lack of energy infrastructure (check California and Europe) with elevated costs of everything, rising inflation, rising interest rates, and rising personal debt levels to cover all the above is going to destroy the global economy.
I was at the grovery store last night.
The entire aisles of Mr. Noodles and the like was empty.
The produce and meat section was fully stocked.
GOD HELP US!
Hey Garth – I just want to let you know – we care, good sir. I really hope you are mentally on the mend from the incident. I have been here since day one and you are a treasure to the nation. Have a great weekend.
Who would have thought that if you hold interest rates artificially low, during a booming economy for many years, that some epic macroeconomic distortions would take place, which would spill over into microeconomics.
I suppose some would have seen the paradox, and the inevitable real estate and equities crash.
But that would have been somebody from the psychology department, and definitely not the insipid accountants and charlatans.
#12 Dan
And it’ll get worse this winter with the Farmers Almanac predicting an early and harsh winter. Europe if course is toast. Green Goons would rather watch Granny freeze than admit that the “transition” isnt happening for decades if at all.
Inflation will go up not down as an energy shortfall raises prices. The Strategic reserve in the US is below 1984 levels . Canadian companies aren’t investing. Put it all together, you’ve got a snap depression early ’23.
Good thing Charles 3 has zero power. His goofy green wokeness is in line with Larry Fink and the ESG market that’s propping up China by inhibiting western companies.
Garth you’re reporting on Canadians HELOC debt is spot on but under reported. We already know why dry noodles and soup are now the staple diet while meat is no longer affordable. 6 months ago we saw polls reference 50% of people couldn’t handle a $200 increase in costs, well, we’ve blown past that and I’ll bet credit default reports won’t make it to Christmas.
Whatever happened to geographic diversification. All the markets in Euro,US, Asia and Soviet Canuckistan all seem to move in synch these days???
Here is a picture I found meaningful, although I am not quite sure what the meaning is. It must be something though:
https://cdni.russiatoday.com/files/2022.09/original/631a254520302725e3463f15.jpg
Thirty years ago Putin was not yet an international pariah – just one in disguise. – Garth
At the start of 2022, the BOC rate was at 0.25 percent, with this weeks ¾ percent increase, it now sets at 3.25%, for the math, that is 13 times higher and they are not finished yet.
History has shown, it takes up to one and half -two years for the full impact of higher rates to be fully felt in the economy, what is considered higher rates today, those rates will be around for all of 2023 at most likely also through 2024, the Government is determined to fix this, if it takes a full-blown recession, “sorry for the pain”, but it must be done. Keep in mind that the people who borrowed on variable at the beginning of the year is paying double now or more for their monthly mortgage payments, but that exact mortgage payment hike is after your income tax deductions, meaning your Gross Salary has to be will up in the upper brackets to sustain this household impact, unless you have plenty tucked away.
If you borrowed early in the year, the rates are currently will pass your stress test, My nephew who works for a large organization, hears stories of “what have I done, is common conversations” around the water coolers for those that have returned to the office. I have mortgaged myself beyond belief, these sad stories are not just a few, but there are many of them, on what it is taking to make the monthly payments right now. WFH is dwindling and most likely will be almost history in a year, unless MR. COVID raises its head in a big way again. It’s common knowledge that 87 percent of real estate agents will fail within the first five years, the majority of these are within the first 18 months, but it’s not as simple as that. A Combination of housing inventory challenges, anxiety around the country, and ever-changing effective lead generation strategies made the real estate industry more complex throughout 2021, so that failing percentage may even increase as newer challenges present themselves on the complex millennial information highway. Millennials are exceptionally savvy on how the web and internet works best for them, just take a look at what they have been able to achieve through Reddit in supercharging stocks and then cashing in. For those who have been around awhile, real estate fees use to be a crazy 6% years ago, it came down somewhat in our generation through push backs, but it has a long way to drop yet for what a real estate company charges today, vs what work they put into any particular home. Sure a realtor will give you the song and dance story on how hard they worked for you, but do your own Math and figure out the hourly wage that was taken from your home on a sell. August may have been a little upbeat in real estate for going back to school moving sales, but September onward will fall off the cliff for sales. You will hear a ton of excuses about why September was not good, but there is a fire storm behind the financial scenes that one cannot see across the room for smoke, there are chartered waters from history ahead. We did not learn from the mistakes of the past, nor did we guide our newer generations will on this one, they are our future CEO’s, Directors, Leaders and Presidents, a lot of pain on the horizon seen from the crow’s nest up here. In 1973, the world announced an OIL shortage in the earth to get prices higher, look at what happen there, similar example: there never was a house shortage, it was manmade out of fear.
S***’s getting real…. Europe is a mess with no energy. Just wait until winter when the it’s no longer the growing season for northern climates.
Typo? – percent checker here
an adjustable mortgage has seen payments rise from $1,124 a month to $2,506 – a hike of almost 50%.
********************
something is off there…
The Jobs Report. It’s a sample people , not a count! It’s subject to error.
In the BNN discussion of the 40k or so jobs lost in August, there was not a word about the accuracy of the report. About statistical and sample noise. About possible sample errors and just statistical uncertainty.
I believe the sample is accurate at the national to level to only about plus or minus 28,000 jobs and that’s 19 times out of 20. The 20th time is a bigger statistical error.
Chill and wait for next month.
That’s not to say we shouldn’t take this as a negative indicator. Jobs are probably cooling a bit. But it’s crazy, lazy and hazy not to acknowledge the potential random error as well as sample selection errors.
I always believed that with the low interest rates, we were living through one of the greatest opportunities in the history of modern banking to get out of debt – which I’ve always viewed as a necessary evil to be used sparingly.
I can’t count the number of times I was met with withering disdain when I would mention that to those younger than me. I just didn’t understand…things are different now…I’m over 50 and out of touch with the new realitiy…the government won’t let interest rates rise as that would cause too much hardship…
I would just smile, shrug, and say ok.
Interesting
————————
In the same essay, Poilievre articulated a principle he would later abandon. “Politics should not be a lifelong career,” he wrote. “Therefore, I would institute a limit of two terms for members of Parliament.” Poilievre is now in his seventh term in office. He qualified for his full pension at age 31. In the same essay, Poilievre articulated a principle he would later abandon. “Politics should not be a lifelong career,” he wrote. “Therefore, I would institute a limit of two terms for members of Parliament.” Poilievre is now in his seventh term in office. He qualified for his full pension at age 31.
#17 Nonplused on 09.09.22 at 10:44 am
Here is a picture I found meaningful, although I am not quite sure what the meaning is. It must be something though:
https://cdni.russiatoday.com/files/2022.09/original/631a254520302725e3463f15.jpg
Thirty years ago Putin was not yet an international pariah – just one in disguise. – Garth
^^^^^^^^^^^^^^^^^
Nonplused continues to defend the indefensible. From 09.07.22 at 8:56 pm “If they start throwing ex-presidents in jail for mishandling “documents” that’s the end for US democracy”.
#191 Gravy Train on 09.08.22 at 1:59 pm
#176 Stoph on 09.08.22 at 12:17 pm
Luckily for the greenies in BC, less than 5% of the electricity is generated from fossil fuels.
You forgot to mention that hydropower generates 94% of Quebec’s and 97% of Manitoba’s electricity. (Per your link.)
——————————————————-
Good point, that was some home province bias on my part. An important thing to remember is that hydro can act similar to a battery for renewables since it can be ramped up or down fairly easy and stores energy it doesn’t use. Perhaps AM in MN can provide insight if solar battery storage is still needed when the grid has lots of hydro.
Could the national house price decline in Canada surpass that of the pre-2008 US housing crash?
All corrections typically overshoot the mean. The mean in RE is typically 3.5x the avg income in the neighborhood. So if the avg income in your hood is 150k, the bottom would be 3×150 = 450 – 500k. Each locality will have a different bottom.
When? dont know. May be 1-3 years.
My neighborhood. 175k. Bottom would be 525k-600k. Current price: 1.3Mil. Long way to go.
We should not forget that, perhaps with a time delay, these impacts that are happening to consumer borrowers are also happening to government and corporate borrowers. Fiscal policy will be affected.
So, most likely, tax rates will rise. Although as I have stated here many times before, I believe we are already at or perhaps past “peak tax”, the point at which raising taxes no longer raises overall revenue. There is only so much productivity out there to tax, and once the “combined effective national tax rate” including all taxes at all levels goes over some number (I figure it is 25%, but some would say it can be as high as 50%), any increase in taxes results in a corresponding reduction in productivity and spending which results in a slowing economy rather than increased tax revenue.
It works kind of the same on a national level as what happens on an individual level to our poor indebted household with a VRM and HELOC. As the interest rate rises, the amount of money available for other things decreases. And how increasing tax rates affects the individual is the same: Higher taxes leads to less spending. Less spending on the individual level leads to less things to tax all down the line. There is only so much money.
Printing more money doesn’t help once one understands what money is. It isn’t real. It’s not a physical thing. All it is is a very portable contractual claim on future goods and services. It doesn’t exist in nature, only in our heads. Printing more of it does not lead to more future goods and services, it leads only to inflation (future goods and services get repriced to reflect the total amount of claims against it).
We can clearly see this happening in Europe right now with their self-induced energy crisis. In this case what has happened is a loss of a major supply (Russian oil & gas), but the effect is interesting. The supply went away for artificial reasons but the money did not, so prices skyrocketed. The solution some of those crazy governments are proposing is a combination of price caps and subsidies. But I ask you, how is that going to make even one more GJ of gas available this winter? It won’t. The more they subsidize fuel purchases the more the price will rise. And the price caps won’t do anything at all except distort market signals by encouraging consumption where consumption should be reduced.
So where are we headed? Well, if we go with my highly simplified version of the “Taylor rule”, interest rates should be inflation + 2% (or more when profits are strong). So interest rates should be about 10% right now, not 4%. We can argue all day about whether the premium should be 2% or 4% or 0%, but I think it is self evident that interest rates cannot be sustained below the level of inflation.
Therefore I feel it is safe to make a prediction for this winter: Energy shortages and high prices, rising interest rates, and fiscal turmoil. What the political ramifications of this will be is hard to say, because crowds of people act like crowds of cats: anything that can happen, usually does. Here the prediction gets a bunch harder, but I expect to see protests in Europe that will make Jan 6th look like a bus full of foreign tourists snapping photos, and they have already started in some of the fringe countries. (It’s easier to make predictions if you just predict things that are already happening.)
Aliens from space must be wondering what the heck is going on. Why on earth is Europe planning to burn the forests and their furniture when there are pipelines in place to ample energy supplies? But I can explain it to them by pointing out that all the instrumentation we have employed in the search for intelligent life in the universe is pointing up. There’s none down here, and we already know it. It gets proven again and again every. single. day.
#22 Observer on 09.09.22 at 11:11 am
#17 Nonplused on 09.09.22 at 10:44 am
Here is a picture I found meaningful, although I am not quite sure what the meaning is. It must be something though:
https://cdni.russiatoday.com/files/2022.09/original/631a254520302725e3463f15.jpg
Thirty years ago Putin was not yet an international pariah – just one in disguise. – Garth
^^^^^^^^^^^^^^^^^
Nonplused continues to defend the indefensible. From 09.07.22 at 8:56 pm “If they start throwing ex-presidents in jail for mishandling “documents” that’s the end for US democracy”.
———————————-
No, what I was thinking about the photo was more like the Queen could build bridges where others could not, and that the loss of such a figure does not portend well, given that we seem to have a great shortage of people like her to take her place. What are we going to do? Send Trudeau to Moscow? Oh that’ll clear things up.
The photo makes me feel like the adults are slowly, one by one, leaving the room, and we are on our own.
Speaking of getting real (as the today’s title suggests), what impact on the larger Canadian economy will this negative wealth effect have? Will the thousands of wallets slamming shut be offset by all the loser renters without a care in the world?
Gotta boost that GDP and diversify the B&D, so it’s welcome news that the Upper Deck 2022-23 hockey cards & FIFA World Cup sticker album will soon be here!
Ottawa Real Estate Market Summary:
Prices were slightly lower on a month to month basis in Ottawa for August 2022. Given the significant month to month declines over the last few months this is relative good news for sellers.
Detached homes gained 3.5% from a year ago. They were down about $15,000 on a month to month basis.
Townhomes were up 6.2% compared to a year ago and lost about $3,000 on a month to month basis.
Condos gained about 3.7% compared to a year ago and were down about $4,000 on a month to month basis.
Days on market has continued to increase while active listings and properties sold were fairly stable on a month to month basis.
For those interested in recent sold prices, Ottawa real estate sold prices are available via my site https://ottawarealestatesoldprices.ca. Please note, you will need to register and sign-in in order to access sold data.
https://www.kirilpeev.ca/ottawa-real-estate-market-stats-for-august-2022/
A Queen, then a Cat photo.
A suitable succession.
Happy Feline Friday!
Did you know:
A female cat can be referred to as a molly or a queen.
#173 Faron on 09.08.22 at 11:30 am
#48 Faron on 09.07.22 at 12:35 pm
#39 Sail Away on 09.07.22 at 12:14 pm
Market psychology (put/call ratio, positioning) is dour at this local low, so a small rally seems likely.
—
1.6% on SPX, 1.2% TSX later… See if Friday brings a VIX crush rally
—
Another 1.5% on the TSX, 1.3% on SPX. On $1M, that’s $25k to $31k.
Unemployment rate is at 5.4%…hopefully it goes 2 percent higher!!
I have a small professional business and CAN NOT find anyone to hire….the odd candidate that does apply for a job expects at minimum 25% salary increase!!!
#28 Nonplused on 09.09.22 at 11:34 am
#22 Observer on 09.09.22 at 11:11 am
#17 Nonplused on 09.09.22 at 10:44 am
Uh, western dignitaries have visited with Putin up until a year ago. You have no point. Now Putin is acting like a greedy 6 year hold. Indeed, at least one adult has abandoned ship. You don’t build bridges when the counterparty is using tinker toys.
Inflation not going away anytime soon. The BC NDP has just given some of its unions a 11% raise. The nurses will get more. https://www.theglobeandmail.com/amp/canada/british-columbia/article-bc-reaches-tentative-agreement-with-public-sector-union/
The problem with papering over a situation where you would have a reality check and serious debt liquidation plus deflation is that people lose any first hand knowledge of what a real depression is all about and why it happens and more importantly why it needs to happen.
An example is a forest that almost never has forest fires and is loaded up with deadwood. If it catches fire it can become like a hurricane of fire where as if fires were permitted to happen massive amounts of dead wood would not build up and there would be a limited burn that would renew the forest with recycled minerals and plenty of sunlight getting through to the forest floor. Economic depressions that happen every 30 years without intervention by government is like the occasional forest fire that renews the forest. When you mess with the natural order of things you get firestorms and double depressions like the dirty thirties or worse. We may be looking at a triple depression or worse. As for real estate in the 1920s there was a real estate mania and it crashed along with the other markets. Too much debt and price inflation relative to incomes was the likely cause. History rhymes and most people never learn.
Could you just leave for a while and pursue your hobby of pulling wings off butterflies? – Garth
#34 Faron on 09.09.22 at 11:52 am
#28 Nonplused on 09.09.22 at 11:34 am
#22 Observer on 09.09.22 at 11:11 am
#17 Nonplused on 09.09.22 at 10:44 am
Uh, western dignitaries have visited with Putin up until a year ago. You have no point. Now Putin is acting like a greedy 6 year hold. Indeed, at least one adult has abandoned ship. You don’t build bridges when the counterparty is using tinker toys.
—————————————
You build bridges where the river is.
A Queen, then a Cat photo.
A suitable succession. (***Much better than Charles)
Happy Feline Friday!
Did you know:
A female cat can be referred to as a molly or a queen.
I’ve seen tributes of flowers left for The Queen outside the palace, and thought to myself…that looks way less when compared to flowers left for Princess Diana.
Seems The Firm has noticed this already, and will be clearing flowers daily to avoid the unfortunate (but likely) comparisons.
https://metro.co.uk/2022/09/09/why-flowers-left-for-the-queen-wont-grow-to-the-sizes-seen-for-diana-17334508/
Percent Check on aisle 32
Faron at 32 said:
Another 1.5% on the TSX, 1.3% on SPX. On $1M, that’s $25k to $31k.
*********************************
Get a new calculator.
#13 Dave well said sir. And Garth please stop making sense. Just stop it lol.
#40 Shawn on 09.09.22 at 1:01 pm
Percent Check on aisle 32
Faron at 32 said:
Another 1.5% on the TSX, 1.3% on SPX. On $1M, that’s $25k to $31k.
*********************************
Get a new calculator.
—
Oops, had it backwards: $27 to $29k. Regardless, a stiff price for selling at a local low. By virtue of time, the range is now $27k to $31k.
I’m a young millennial, but I started earning money and having conversations with my parents about money when the 2008 crash happened. It wasn’t until I was older when I realized HOW it happened, but I’ve always been weary of debt and have safely avoided it my whole life. Yes, I bought my car with cash, every new cell phone with cash, and have only rented. For the past few years I’ve felt like an idiot because borrowing costs were low, and everyone around me appeared to have more expensive material possessions and vacations than I did.
I don’t want to see people my age struggle, but I am thoroughly enjoying my budget staying the same while interests rates rise. Maybe in a year I can get a decent deal on a house (you know… to live in for the next 25 years), but until then I’ll keep living beneath my means and diligently saving.
25 Stoph
“An important thing to remember is that hydro can act similar to a battery for renewables since it can be ramped up or down fairly easy and stores energy it doesn’t use. Perhaps AM in MN can provide insight if solar battery storage is still needed when the grid has lots of hydro.”
————————————————
Yes, we so often think of batteries when we talk about storage of solar power. This link lists other options.
https://www.energy.gov/eere/solar/solar-integration-solar-energy-and-storage-basics#:~:text=The%20most%20common%20type%20of,(fluids)%20with%20CSP%20plants.
At present, without significant storage, a grid capable of supplying energy at peak demand must be operational without solar or wind. In California’s case, the peak demand is probably during a heat wave (at or near peak
solar) so not as critical an issue, unless you are
charging your EV?
I believe AM did note that excess solar from cali can wind up in Canada, with a night time trade for cdn Hydro.
Thanks Garth for posting a picture of Jarads cat Moses. I recognize the beeping key chain fob on his collar. (Two weeks ago I took my fathers cat Bandit up north for a week, and he vanished for four days)! O and thanks for the 1000 words you wrote too, Garth.
#14 Quintilian on 09.09.22 at 10:18 am
Who would have thought that if you hold interest rates artificially low, during a booming economy for many years, that some epic macroeconomic distortions would take place, which would spill over into microeconomics.
I suppose some would have seen the paradox, and the inevitable real estate and equities crash.
But that would have been somebody from the psychology department, and definitely not the insipid accountants and charlatans.
*****
As you know it was no surprise to most of the sensible blog dogs. Kicking the can down the road especially after the Great Financial Crisis. Low rates for far far too long. We should have suffered the reversion back then and took our collective medicine…hindsight is great though. Lots of folks thought the shift would hit the fan sometime in 2020.
Uneasy times were are in. Construction jobs took a hit in the last month due to cancelled projects if I read correctly this am.
It seems CityTV is sending Lisa LaFlamme and her flinty locks across the pond to cover the Queen’s funeral. Good on them and her. She will be perfect for this.
I suppose CBC will have to dig up Pastor Mansbridge now and send him too.
#33 dave on 09.09.22 at 11:51 am
Unemployment rate is at 5.4%…hopefully it goes 2 percent higher!! I have a small professional business and CAN NOT find anyone to hire….the odd candidate that does apply for a job expects at minimum 25% salary increase!!!
===
I guess it depends on what your job is. Is it an entry level job with a long laundry list of qualifications required?
On the flip side, those of us in the mid to senior level in our professions are getting routinely ghosted by companies, even after doing 3-4 interviews, skills assessments, and a personality test (how does yellow make you feel?). The New Yorker recently published a piece reflecting this bizarre HR world, and there’s a pile of threads on this subject on LinkedIn.
Companies complain they can’t find people. Professionals apply with quality skills and get radio silence. Something is wrong.
#37 Nonplused on 09.09.22 at 12:36 pm
#34 Faron on 09.09.22 at 11:52 am
#28 Nonplused on 09.09.22 at 11:34 am
#22 Observer on 09.09.22 at 11:11 am
#17 Nonplused on 09.09.22 at 10:44 am
You build bridges where the river is.
—
When the river is volatile and violent one is wisest to stay the hell away from it. When it settles, build a dam to prevent future destruction.
Of course, a flooding river may jump it’s banks and re-route itself (overthrow the leader) and then that bridge you built is just a stupid, anachronistic monument to poor judgement arching over a dry field somewhere with your name inscribed into the footings… made of tinker toys no less.
Perctage gains?
#42 Faron on 09.09.22 at 1:22 pm
#40 Shawn on 09.09.22 at 1:01 pm
Percent Check on aisle 32
Faron at 32 said:
Another 1.5% on the TSX, 1.3% on SPX. On $1M, that’s $25k to $31k.
*********************************
Get a new calculator.
—
Oops, had it backwards: $27 to $29k. Regardless, a stiff price for selling at a local low. By virtue of time, the range is now $27k to $31k.
***********************
Can anyone help Faron out here?
I can’t help but think the government will do everything it can to blunt the BoC’s actions.
Instruct banks to offer payment holidays if things get bad with VRMs
Remove OSSI stress test
Further public hiring increases and pay increases
Helicopter money and tax rebates
Further increase immigration or real estate buying programs for non-Canadians
So much of our economy is RE dependent that they can’t let it normalize until after the next election.
Ron Butler was a guest on this week’s “Herle Burley” podcast, together with John Webster, CEO of Scotia Mortgage Authority. An hour and a quarter well spent, even for someone who has been mortgage free for the past 15 years. The coming years are going to be a really bad time to be a municipal politician.
The Chinese BYD EV cars are being sold in Australia.
They are being tested in Germany.
I read some reviews from German auto journalists and generally the verdict is positive.
Prices are in the € 40,000.
It’s over. And, no, real estate is not unaffordable because there’s too little of it. That will soon be evident. – Garth
You can say that again!
Also realize that as we massively directed capital into RE – at the expense of actually productive activities – we created a massive capacity to build, renovate and sell houses, far far more than we really need in a “normal” healthy economy. Let’s just say the adjustment of this massive industry to much lower demand should be interesting to watch.
When I think of what I had to pay for certain jobs in recent years, some of this will feel like sweet revenge…
More unsustainable stuff from your Trudeau government:
https://www.theglobeandmail.com/business/article-expansion-of-federal-civil-service-lacks-the-proper-measurements-for/
What do you think happen when we finally need to rely on our productivity to maintain our standard of living?
Jared, So sorry about losing your friend Moses. You sound like great owners; hope you can give another cat a great home and continue to honor Moses’s memory.
…it starts?
Britain could plan for the Queen’s death – but not for the risky tides of public feeling
There is, of course, an obverse of collective sadness, which comes from the same place. The great Barbara Ehrenreich, who died last week, wrote a whole history of collective joy, in which she detailed the age-old creation – and suppression – of mass celebrations that allow us to let go of ourselves completely. From pagan rituals to medieval dance manias to rock concerts, the communal ecstasy felt by participants is therapeutic. But this spontaneity is disapproved of by those with power, and very often regarded as something to be put down or stamped out. It stems from that fear of collective consciousness, of people being part of something – of feeling part of something – not in the rational sphere. Time and again, the authorities work hard to disperse the participants and return them to their atomised state.
https://www.theguardian.com/commentisfree/2022/sep/09/britain-queen-death-public-feeling-diana-brexit-emotion
Changed lyrics…
God save our gracious king!
Long live our noble king!
God save the king!
Send him victorious,
Happy and glorious,
Long to reign over us,
God save the king.
Old recording of it, VE Day 1945-05-08:
https://www.youtube.com/watch?app=desktop&v=kz2S_7FnWO4
BBC, as usual, superb job covering King Charles III address to nation, snippets:
https://www.bbc.com/news/live/uk-62842089
And the poor guy during his meet & greet of mourners … wrong door Buckingham Palace – new at job, 1 min mark:
https://www.bbc.com/news/live/uk-62842089
And what impact will pushing highly indebted households over the brink have on discretionary consumer spending and the economy as a whole? I know you’ve said that everything is going to be hunky dorey Garth, but I just don’t see how this isn’t going to have broader effects.
#50 Shawn on 09.09.22 at 2:04 pm
***********************
Can anyone help Faron out here?
—
Put yer glasses on dumbass. Where I come from “another” means addition.
1.6% + 1.3% = 2.9% (more or less, adding pcts is generally a bad idea unless they are small)
0.029 * $1,000,000 = $29,000
Anyhow, now it’s $32k.
Thank you for your daily blogging. Hope you’re feeling better now.
Real life scenarios don’t matter anymore. We live in fantasy land where money is printed indefinitely and sent to the masses who take on too much debt. Those who are responsible and save and invest get nothing. So go ahead and buy that house. Justin and Freeland will save you.
#57 Feelings Police
“The whole damn place goes crazy twice,
And it’s once for the devil and it’s once for the Christ.
But the boss don’t like these dizzy heights.
We’re busted in the blinding lights
Of closing time…”
#44 Dr V on 09.09.22 at 1:34 pm
——————————–
There certainly are other grid scale electrical storage options than batteries. Though by the sounds of it grid scale battery storage is gaining traction.
It drives me nuts when people talk of replacing all conventional power generation with renewables and not talking about the requirement for energy storage. Similarly it also drives me nuts when people fail to acknowledge that some level of renewables can be integrated into grid to provide reliable power. The appropriateness of renewables and integration of them into the grid depends a lot on local variables.
I anticipate Canada’s experience in integrating more renewables will be a lot better than that of California or Europe.
My BMO Investorline margin account interest rate went from 3.25% in March to now 7%. They pulled discount on on over $25K (I had low 6 figure), now completely retired.
A nation struggling to survive with an economy dependent on REAL ESTATE -what could go wrong lol – there will be blood people much bloodiness
Looks like the 5 year yield is going down. Maybe Adam Vaughan is sticking with his promise to keep Canadian real estate prices high for his global capitalists.
Yep. You’re right, old Ron the Realtor DID do the maths. And so have the banks. It’s just the overleveraged homeowners/spec borrowers that have yet to do the sums. Rates do not have to rise much further to bring more downward pressure on residential real estate values. Banks will move to protect balance sheets, rationalise loan books and become more “conservative”. Inflation will remain for reasons that the Bank of Canada cannot influence (structural dearth of commodity supply, etc). The markets will suffer and so will the over-geared economy. By that time the bond markets will have overtaken the responsibility for tightening conditions as investors move to preserve capital.
And then the rest will finally learn bond maths.
ASP house prices (GTA) are still almost double from 2013-14 levels. The covid mania will be wiped clean and then some more before the bottom is reached. Interest rates will almost double from current levels.
I have a niece much less than a year into a five year variable
Her mother recently sold old mutual funds at the bottom and got a GIC, barely two hikes ago.
I’m just a crack pot with dumb advice, when they make their plans. (’cause I read a certain blog)
Sure!
#25 Stoph on 09.09.22 at 11:12 am
#191 Gravy Train on 09.08.22 at 1:59 pm
#176 Stoph on 09.08.22 at 12:17 pm
Luckily for the greenies in BC, less than 5% of the electricity is generated from fossil fuels.
You forgot to mention that hydropower generates 94% of Quebec’s and 97% of Manitoba’s electricity. (Per your link.)
——————————————————-
Good point, that was some home province bias on my part. An important thing to remember is that hydro can act similar to a battery for renewables since it can be ramped up or down fairly easy and stores energy it doesn’t use. Perhaps AM in MN can provide insight if solar battery storage is still needed when the grid has lots of hydro.
—————————————————
It already is, can be up to 2000MW going north around noon on a spring weekend day, and going south around 4-6PM when the peak hits.
BC Hydro makes a fortune off the trade, even though BC is actually a net importer due to the amount of cheap renewables that the western US needs to get rid of. This includes wind power from WA/OR in the spring when the US loads can’t absorb it.
The problem is that they can’t dam any more rivers, anywhere. Look at the boondogle that was Muskrat Falls and now Site C. Worse than a nuke plant. C$15-20B for 900MW peak. At say 5,000GWh/yr at 5% interest, that’s 10c/kWh just for the interest, and BC sells much of it for 4c/kWh, hence the 30% increase in everyone’s bill.
CA and TX each need about 5,000MW x 1-4hr for storage. There are multiples of that in the queue for development, many won’t proceed, but many are.
TX requires all new large solar to have storage rated at 50% peak. Still a market for 1hr systems as they can be backed up by cold starting gas turbines. CA requires 4hr systems now.
TX had a problem in winter 2020 when the gas lines froze (need to hire some Albertans). Probably won’t happen again. Places like New England require gas plants to have 2 weeks of liquid fuel storage on-site, just need to flick a switch to change over.
It’s Lithium Phosphate for the forseeable future.
Housing should fall hard. Just be patient everyone.
So many people fell for the debt trap the international bankers set up. 1929 will look like a walk in the park.
#72 AM in MN on 09.09.22 at 4:48 pm
#25 Stoph on 09.09.22 at 11:12 am
#191 Gravy Train on 09.08.22 at 1:59 pm
#176 Stoph on 09.08.22 at 12:17 pm
—
Thanks AM, good stuff.
Meh. The stimulus printing is still in overdrive. Europe will print $1.5-trillion to make energy companies whole and Uncle Sam is still watering down oil prices with 1m bpd from the strategic reserve. The taps are still wide open.
THAT cat was stellar gorgeous.
Says a dog person
#46 DON on 09.09.22 at 1:49 pm
“Uneasy times were are in. Construction jobs took a hit in the last month due to cancelled projects if I read correctly this am.”
Agreed.
Although employment/unemployment numbers are known to be volatile and can reverse, and sometimes the stats are adjusted the following month, it does appear that construction is the biggest looser.
But to the larger issue of interest rates, and inflation, those who are praying in genuflect to Saint Joseph (you know he is the patron saint of Real Estate), that higher unemployment will bring down inflation and therefore the revival of low rates that feed the bubble, will be disappointed.
High unemployment, high inflation, and high interest rates can coexist, and usually do stubbornly persist.
Tick Tock, Tick Tock
SUB PRIME STUPIDITY IN THE EYES OF MANY CANADIANS OF MANY WALKS OF LIFE AND GENERATIONS. BLAME IT ON THE REALTORS AND BANKS WHO TOOK THEM ON A WALK THROUGH THE TULIPS
I always thought Helocs were a bigger problem than reported….people will borrow from their Heloc to pay the interest on the heloc, and buy themselves another month!
That can go on for a long time….longer than the rate hike cycle, in order to wait it …
It more common than many think…..as long as you re assets are more than your debt, you re ok! Crazy….
It seems I don’t need Garth to delete me. I just want to say that I try to make the world a better place than I found it.
My Preferreds are being redeemed. Good and bad news. I am losing divided income but getting capital gains – I bot cheap. I will buy down my Helco loan as it now costs near 6% with more rate increases on the horizon. So, I look at reducing my Helco that will return 6% risk free and become dry powder.
I am still looking for yields at reasonable risk. As for options – win 1, lose 2. Fits my pattern, as I say, “2 of 3” is a good day. I can hit but there days where everything goes to hell.
Seeing the StatCan jobs report I am struck by a few things. I focus on the public sector which represents the greatest source of non productive use of our National GNP. To be fair, there are good people in this group. The problem in my mind is the demand on “free” services and you can not make enough of it.
My theory is the Stats employment number is based on reported payroll. This means retirements count. Then I have to think, those public retired jobs are being replaced by part-time or not at all. I know this group is the greatest source of wage increase. Ironic from those that serve to protect us. I have no worthy answer now but I am seeking.
Has the BoC the correct direction? I do expect an interest rate slowdown. I wish T2 would stand on other than climate change, where to travel on TP money or choice of socks. I am not a sycophant so expect me to speak and suffer. I will find a way, not to ever one’s liking.
The bank called me recently to see if I had a variable mortgage and to see if I had thought about the recent rate changes. Although I know when it’s time to renew it will be higher, I have at least until 2025 on my fixed (and great rate) to manage to save and plan, and thankfully we were good and when we remortgaged, we paid off the line of credit (and never used it again) and now we just have a reasonable mortgage.
Alas though, the idea that payments on a LOC could increase that much has discouraged me from buying the VW camper van I so want. I know it’s not a necessity, but it would bring so much joy…
Flop Drops.
Yes, the main artillery shells have been going off in the Fraser Valley, but let’s do one where the war is fought between The Supposed Haves, and The Supposed Have Nots, at the border of where East Mets West.
The details…
224 e Woodstock Ave, Vancouver.
Asking 1.59
Just sold for 1.48
So one of the reasons I kept an eye on this one, was because I used to live within a few blocks.
This place is only 14 years old, slightly smaller than usual Vancouver city proper lot.
Also, if whoever just bought this place walks about 150 meters towards UBC, they are standing on the Westside front of the Battle Of The Wallet Bulge…
M48BC
#20 Shawn
Typo? – percent checker here
an adjustable mortgage has seen payments rise from $1,124 a month to $2,506 – a hike of almost 50%.
********************
Garth has a history of being horrible at math. But the point he is trying to make is still valid. When I renewed, you could go variable for 0.85%. That would now be 3.85%. On 500K @ 0.85%, your payments would be roughly $1850 (assuming 25 years), with $354 going to interest. Now @ 3.85%, $1604 would be going to interest. Another 75 point hike and you hit the trigger point.
Kilt.
Flop Drops.
O.k city living done, let’s see if anyone is finding value where the trees are still plentiful.
I’ve showed a couple in this area on the south end of Cultus Lake, the prices just keep coming down.
The details…
55 1885 Columbia Valley rd , Chilliwack.
Original ask. 1.12
Just sold for 750k
So recently I showed a couple of sales in the late 800s, these places are only 4 or 5 years old, 1500 to 1750 square feet, no stairs , recreation on your doorstep, trouble makers not on your doorstep.
People are paying this type of money for 2 bed condos, not that far away.
Bottom of the barrel detached can be had below half a million, or though some of them look similar to double wide mobile homes.
Bottom of the bottom of the barrel, someone just bought a mobile home for 35k, to keep them safe from the elements.
If I was 10 or 15 years further down the line, I might be interested in something like this, for a low maintenance retirement.
Then again, if you’re desperate, it’s commutable.
So is a pension, I guess…
M48BC
https://www.zealty.ca/mls-R2698102/55-1885-COLUMBIA-VALLEY-ROAD-Chilliwack-BC/
Excellent post, Garth as usual. We are sure living in a different world now from what we knew when we were younger. Just have to take one day at a time. Looks like the rates will be higher, and we will all be paying more in food, petrol etc. BOC will be paying the piper dearly, big mistake over the years with low interest rates. A lot of debt out there, probably a decade to recover. Still looking for the RE dip, and I mean a huge dip in prices. Sellers are still in denial here in BC. A little greedy, perhaps. It will change, and it will be massive.
Love the kitty, sorry it died early, but, I have 2 kitties I adopted, and they are precious. Love dogs too!
Cheers!
DELETED (Anti-vaccine weirdo)
74 Faron on 09.09.22 at 5:17 pm
#72 AM in MN on 09.09.22 at 4:48 pm
#25 Stoph on 09.09.22 at 11:12 am
#191 Gravy Train on 09.08.22 at 1:59 pm
#176 Stoph on 09.08.22 at 12:17 pm
—
Thanks AM, good stuff.
———————
Same here.
No knowledge in that field.
So hearing from someone who knows the ins and outs of the electricity energy business is an extra bonus of coming here.
Hi Garth
Really sorry to here about your incident with Pony- tailed guy. Even more disturbed that no one stepped forward to your aid! Hope you are healing up well.
My family have followed your blog for years- Many thanks!!
I saw Elizabeth 49 years ago in Burnaby. My mother drove me by the spot a few days earlier where she thought I would get a good view and that morning she sent me off on my bicycle to the bottom of a big hill. I was 6 years old. I stood by myself on a corner by a ravine waiting and when the car slowly drove by, the Queen smiled and waved at me….and so I waved back to her. I pushed my bike back up that hill and I remember thinking it was worth it……
“Could the national house price decline in Canada surpass that of the pre-2008 US housing crash?”
—————————————————————
The word on the street is very doubtful, just like the TSX composite or S&P 500 will revisit their peaks prior to Covid?
Who do you think will be the first to start pounding at the doors of the our elected politicians to stop the bleeding?
Will it be CREA with their donations in hand or all those RE folks moonlighting as city councilors?
Or the banksters with the rehypothecation of the central banks largesse?
Or the shareholders of those banks demanding the $billions of steady growth in dividends?
The list goes on but one thing is for sure, with Canada’s very mediocre economy being able to sustain so much debt, when will Canadians be facing a scenario like the Greeks experienced?
“All that monetary (cheap rates) and fiscal (CERB etc.) stimulus needs to be unwound. So the reasons house prices went nuts (Covid cocooning, WFH, urban flight, 2% mortgages, subsidy cheques) will not be replicated. It was a one-off world. It’s over. And, no, real estate is not unaffordable because there’s too little of it. That will soon be evident.”
I wonder how many years it will take the sheep to learn all that. Many may live in their houses until they die waiting for prices to get back to 2021 levels.
How common is a $300k HELOC though? I’m sure it exists but that must be the very small minority.
How big is $170 billion? – Garth
What if $300k HELOC invested diversified among ETFs/Bond funds 60/40? @50% tax bracket that $1200 comes down to $600.
Mortgage payments increased how much?
A variable-rate home loan of $500,000 with an adjustable mortgage has seen payments rise from $1,124 a month to $2,506.
*******************
Something is wrong there. At 0% a 25 year mortgage would have monthly payments of 500,000 / 25 / 12 = $1667 per month.
Someone got a mortgage calculator? I mean there are increases but the 123% increase noted above has not happened. If anyone cares.
94 Shawn on 09.09.22 at 9:30 pm
Mortgage payments increased how much?
A variable-rate home loan of $500,000 with an adjustable mortgage has seen payments rise from $1,124 a month to $2,506.
*******************
Something is wrong there. At 0% a 25 year mortgage would have monthly payments of 500,000 / 25 / 12 = $1667 per month.
Someone got a mortgage calculator? I mean there are increases but the 123% increase noted above has not happened. If anyone cares.
———————-
We can argue over the percentages.
But fact is that mortgage payments are going up and house prices are going down.
That has not happened over the last 20 years (except a small, short correction in 08,09).
And don’t forget, property assessments are pegged as off now, and mailed out in a few month.
Then it will hit “home”.
Pun intended.
I’ve had my bumps along the years with Garth BUT I am thankful for his experience and knowledge- keep your powder dry people things are going to get interesting
In the area of midtown Toronto that I pass through regularly, I have now counted about 14 townhouse or condo construction sites that still have the fencing up but have been absolutely dormant since about April. Plus, new condos in the area that were being built before 2020 are having a flood of pre-occupancy listings now.
Something BIG is on the way.
Garth, give this article a read and blog post if you can. It’s a brilliant piece filled with despairing reality and faint hope and it reads very true. Canada is no place to dream, but we can change it.
https://www.lootmaar.com/no-place-to-dream/
Another Millennial whine that is all about real estate. Can’t you folks look a little higher? – Garth
Please explain then one thing: why the rent rates are going up then? It there would be enough real estate, the investors wouldn’t buy propeties to rent them out, no? And now we’re in a very strange position: either pay the enormous rent or take a mortgage. The avg rent for a 1 bd condo reached 2700 in dt Toronto
#94 Shawn on 09.09.22 at 9:30 pm
Do you care to acknowledge your mistake @ #40 and #50?
#92 Tasty Treasures on 09.09.22 at 8:49 pm
How common is a $300k HELOC though? I’m sure it exists but that must be the very small minority.
How big is $170 billion? – Garth
********
I say, I say..pay attention Tasty.
Palpha, the “BC NDP” wage hike of 11 % is cumulative over three years, so way less than current inflation. Looks like the workers are getting a paycut in real dollars. This is the kind of misleading info that gets passed around, it’s almost as if it was deliberate, almost ..
22 – Agreed, too many used cheap money as a ticket to having it all . Predictably, the tide has turned and now the shiny new toys are worn and need service , the investment condo is losing money while a tenant requires repairs. Be careful what you wish for.
Dominoes In the area of midtown Toronto that I pass through regularly, I have now counted about 14 townhouse or condo construction sites that still have the fencing up but have been absolutely dormant since about April. Plus, new condos in the area that were being built before 2020 are having a flood of pre-occupancy listings now.
Something BIG is on the way.
There are three big things: withdrawal of credit, price declines and mortgage payment increases
#99 Mr Fox on 09.09.22 at 11:35 pm
Please explain then one thing: why the rent rates are going up then? It there would be enough real estate, the investors wouldn’t buy properties to rent them out, no? And now we’re in a very strange position: either pay the enormous rent or take a mortgage. The avg rent for a 1 bd condo reached 2700 in dt Toronto
Not in BC.. Premier Horgan just capped rent increases at 2% last week. Good luck with keeping your annual rent increases up with the cost of your rental prop owners. boo hoo