Breaking news: Toronto housing sales crash by 22%, here.
Slurs and moral outrage are the cocaine of the political class. Of course, they matter. What politicians say about other people goes to the heart of their ability to represent their fellow citizens. But, it is not the stuff that should preoccupy us.
More important, of course, is the price of a bungalow.
My contention is that within a few months, maybe a handful of weeks, Canadians will be caring far more about the value of their homes than they will about antics in the House of Commons, immigration legislation, boycotting the Olympics or the revenue-sucking GST cut.
Today families in this country have more than 80% of their entire net worth in one asset, their homes. This is even more undiversified than the Americans, where a real estate collapse has swept through the middle class like a fatal contagion, and brought the world’s greatest economy into recession. And do you hear about this in Parliament? I didn’t think so.
Meanwhile our compliant and institutional media, combined with self-dealing industry spokesguys are papering over the symptoms of a disease we’d best all talk about treating. A good example is this week’s assertion by Royal LePage, given prominence in unblinking publications such as the Globe and Mail, that the Canadian housing market is strong and vibrant, as witnessed by continual price increases.
“Canada’s housing market remains on solid footing. With the notable exception of a handful of small western cities, the country has returned to an environment characterized by moderate price increases,” says Phil Soper, LePage CEO, in a single-voice media article.
Sadly, this is not the case. Let me give you some reasons.
Let’s take the country’s most expensive real estate market, Vancouver, where the average house price has been sitting north of $700,00 now for more than a year. That means the average Vancouver family cannot afford the average home there. It also means that to buy a piece of property takes, on average, more than 70% of the entire income of a family – which is ludicrous and unsustainable.
This is, needless to say, the highest home price in history, suggesting we are at the top of a cycle. After all, US home values collapsed because of asset inflation (and not subprime mortgages), and the inability of new buyers to get in, even with a lowering of the financial bar.
But here’s the rub. LePage tells people we are into a “more agreeable” era for homebuying, where we are really in red needle territory.
Fact: Sales of resale properties in Greater Vancouver tumbled by 6.4%, year-over-year, in February, and were down 9% from the same month two years earlier.
Fact: Vancouver real estate sales crashed 16% in March from the same month in 2007.
Fact: Homeowners are rushing to get their properties on the market while there is still time. Listings in Vancouver last month increased by 4%, to 5,674 properties, while inventories of unsold homes in the Fraser Valley hit a 10-year high, with active listings up close to 30%.
Fact: In Calgary, listings have been soaring for the same reason – the writing is on the wall and current home values are unsustainable after a decade of excessive gains. The city has become a buyer’s market.
Fact: The average home price in Edmonton has actually started to fall, with single family homes off 5% and condos down 7% from a year ago.
Fact: In Metro Toronto, resales tumbled by 11% in the latest reporting period. Realtors blamed snow.
Fact: Across Canada, house sales have been collapsing at an annualized rate of 70% since 2008 began.
Today Canadians have more invested in real estate that anything else. RRSP contributions have not increased. Family incomes have stagnated. Most Canadians do not have company pensions. Energy costs have increased dramatically. Utility bills, insurance charges and property taxes are all higher, driving up the carrying costs of residential real estate, which itself is more expensive by 70% than it was after Nine Eleven. Worse, we have hundreds of thousands of recent buyers with giant mortgages, virtually no equity, and the distinct possibility of soon having home loans worth more than their homes.
Is this a recipe for financial disaster? Well, it was in the United States, and the blowback from the real estate excess would have come sooner, and less painfully, if they had not relaxed mortgage lending practices, to keep the party going.
But in Canada, we’re smarter, right? That’s why we have prudently allowed 40-year mortgages with lower monthly payments and ballooning debt. It’s why we routinely sell young couples houses with virtually no money down. It’s why our cautious banks approve loans based on postal codes, not appraisals. It’s the reason we let Royal LePage’s CEO got unchallenged when he repeats the industry mantra: “Buy.”
And it’s why this is all unsaid, on Parliament Hill. No coke here.
67 comments ↓
Are these loans somewhat predatory? Sad, regardless. Thanks,Garth.
I just sent your post to my financial advisor. I’ve been wanting to sell our house (too big) and my husband doesn’t want to downsize. Our mortgage is under $700.00 a month (we pay bi-weekly) but I thought we would be better to sell now rather than later, when the prices go down. We are in a good location for young families with school-age children,and are probably the oldest people on our street. I just wish there were good alternatives out there for grandparents who need some space for grandchildren to visit, but don’t need a 3-bedroom back-split with two family rooms. I figured a townhouse or semi-detached would be a lot cheaper than they are. Neither of us are ready for an apartment, though.
I wish someone in Southern Ontario would build some of those nice retirement homes they are advertising in New Brunswick.
Thanks Garth, I have mentioned that all is not well here in East, couple this with line of credit’s bases on home values and the clock ticks faster. Note: I have info that when things hit the banks will increase mortgage rates and line of credit to try and recover their looses to protect their big investors. You are so correct about of priorities Garth, the long and short is the fact that logging is and always has been #1, even apartments will see a price increase…..and oh those dam utility bills. Oh well perhaps Stevie can buy more $150,000 super star shells and tanks, and build more jails and hire more prison guards to lock people up at 80-120K per to feed the economy. Nah perhaps just more money for Charest for personal tax cuts. Hell the GST was nothing and look at all those new mini vans we all have…..to be continued.
Interesting – folks in the big cities are going to feel what has been happening in the resource industry towns for years.
Guess what, it ain’t a lot of fun.
Families do not have 80% of their entire net woth in their homes PERIOD,FULL STOP. A person’s education, training and experience is his real value. It costs about $250,000 and upwards to train a professional. People have real worth; real estate can be a home, a place of business or a parking lot. Location, supply/demand and the availability of money to effect the transfer from seller to buyer based on different motivations create the market. The market is fluid and has a psychological element which can change on a whim. House buyers are generally intelligent and well informed when they enter the market and the majority are looking for a place to live. The American market was rife with speculators, the ill-informed and dishonesty…an accident waiting to happen. Are we in the same quagmire..I don’t think so…not yet.
Well, then ignore it. That’s a good strategy. — Garth
Hi Garth,
I heard David McGinty thinks the cons want committee chaos so that deceiving steven can go to the GG and pull the plug…”those bad oppositions guys/gals”…before the liberals get an opposition day. Sounds like a plan!!!
By the way there are still many people paying for the last real estate blowout in the late 80’s.
Thought du jour,
“We try to make virtues out of the faults we have no wish to correct”- Le Rochfoucauld
Have a great day Garth
Lynne
The American market was rife with speculators. Are we in the same quagmire..I don’t think so…not yet.
By Michael on 04.04.08 9:41 am
interesting comment.
Ontario has lost 400,000 jobs over the last 5 years and were made up by public service hirings. Over the next 5 years Ontario is slated to lose 1M+ jobs while BC has run out of projects waiting for private investment funds for the gateway project that won`t be coming. Cdn investors are already locked out of $10`s of billions in ABCP (subprime revisited). The 40 year 0 down mortgage has put more people per capita in homes they can`t afford that the US subprime fiasco did.
Ontario has gone back to the decades old plan of subsidizing jobs with Ford and look where that has gotten Ontario.
The US is in a quagmire while Canada is in a lava flow.
“Utility bills, insurance charges and property taxes are all higher, driving up the carrying costs of residential real estate, which itself is more expensive by 70% than it was after Nine Eleven.”
All global commodity prices have climbed above what consumers can afford. Rice alone is up 70% in the last year which is the second largest global staple food source.
The only question that seems outstanding. Are we revisiting the 80`s or are we going back to the 30`s,,,, or worse?
Hard to argue with the numbers.
We are not borrowing $400,000 with 40-year repayment terms to buy rice. — Garth
We are not borrowing $400,000 with 40-year repayment terms to buy rice. — Garth
It was just an example of what global consumers have to deal with which has a profound affect on our exports such as copper, nickel, iron etc. While it may look good for our ag. short term in the long run it`ll be a problem.
Housing isn`t the only problem this country has, it isn`t even the biggest.
THE 40 YEAR MORTGAGE
Sooner or later it had to happen.
As most of us know, realestate in Europe has been very expensive over many,many decades. Homes are passed down from generation to generation. How else can the middle class European afford a home.
I’m not a realtor but the introduction to the 40 mtge brings us one step closer to a 50 mtge. Who knows, maybe someday they will be called generation mortgages.
Regardless, I can only hope the 40 year will help some Canadians keep a roof over their heads and I’m talking about an affordable roof.
Challenging times are quickly approaching us and once again the middle class population is going to be sqeezed into a size smaller.
Ron p
I’m very nervous about the upcoming crisis. As an average middle class person what can I do to avoid losing my house?
If one is a speculator they have the opportunity to make big or lose lots depending on the market fluctuation.
If one is purchasing their home to live in, the chances of it appreciating in value over a 40 year term is quite good. There may be ups and downs in the market but over all I would dare say there is no real estate in Canada that has not gone up in value over 40 years.
So a young couple has a choice. They can rent out of fear their home investment will not generate long term gains. Or they can purchase with no down payment amortized over 40 years and trust history will repeat itself.
No real issue here.
Funny how the US is using lower interest rates to try to revive the market – namely making it easier for those who cannot afford their homes to keep them until rates climb again and the cycle begins anew.
As to solutions – we need some regulation on banks to prevent these types of crisis’ from occuring. Namely a minimum downpayment in all cases (not a downpayment gained via credit), minimum ratios of income vs debt before you can buy that can handle at least a 1 point rise in rates, and some reform of how credit cards are handed out – namely the same as with mortgages to prevent people from getting into too much debt. Think about how crazy it is that a person who makes $50k a year can get enough credit via credit cards to go $100k in debt (I did this a decade ago – didn’t go into $100k of debt but had credit cards with double my annual income as a limit when combined).
In the mid 1980s I was working on a construction site near Hanna, Alberta when I got into a conversation with an old farmer/rancher at our favourite watering hole. The conversation turned to government sunsidies for people who were losing their farms, and his explanation is as appropriate now as it was then.
He pointed out that he had started with one section of land back when it was almost being given away. As time went by he increased his land holdings to 8 sections but, as he said, never buying more than he knew he could pay off in 5 years even if times got hard. When the grain and beef prices took off in the late 60s, along with interest rates, “every young guy who thought he could make a million over night jumped in and bought up land at inflated prices with little money down and high debt loads.” That’s when this guy began to sell off his land a little at a time. “They were willing to pay crazy prices for it”, he said.
Eventually the markets adjusted and prices came back to earth. “All these young fellas were now stuck with too much land and too much debt.” In his words, they then went after the government to bail them out. The governments of the time started all these support and income subsidy programs. He then went on to inform me, that he now got the bulk of his income from the government who paid him to leave land fallow or to only plant certain crops. He summer-fed around 50 head of cattle which, he told me, gave him enough money to pay for his hobby which was raising pheasants. He was debt free and living off, as he said, “fools like you who pay big taxes so I don’t have to work the land.” He said he was waiting for the next agricultural boom when he planned to sell off all his remaining 4 sections except for a half section homestead.
The whole point, he explained, was that prices go up and prices go down and if the government tried to insulate people from their own greed and stupidity it only served to make life easier for people like himself.
The same situation applies today. The price of housing is driven more by speculation than market value. My wife and I left Calgary a year ago. We sold off 1,700 suare feet of living space and moved into a 1,250 square foot home at the edge of Red Deer. We now have no mortgage, reduced utility costs, lower taxes and money in the bank. We sold, not because we speculated and made a profit, but because Calgary has become almost unliveable. Our intent is the same as it was in Calgary…to stay right where we are regardless of what the price of housing does. We left a number of friends behind who move up in the housing market every 5 years or so hoping to cash in on the speculative rising tide of real estate values. I have news for them…and it’s all bad. What goes up too rapidly also comes down quickly and if you play in that market be prepared to take your lumps. If you can’t afford it during the lean times leave it alone and don’t go crying to the government to pick my pocket to bail you out of the mess you got yourself into.
Fortunately, this government has followed that path, so far, with the big financial institutions (no bailouts but overall tax relief for everyone) and I hope they keep it up regardless of the pressure from those who think the government is their personal financial backer.
They can rent out of fear their home investment will not generate long term gains. Or they can purchase with no down payment amortized over 40 years and trust history will repeat itself.
No real issue here.
By Janice on 04.04.08 12:11 pm
Let me guess, you`re in real estate with a load of properties to flip.
My first clue was how you described common sense as fear.
Perhaps you`re too young to remember those exact words were bandied about in 1981 by realtors. You should at least remember when analysts were saying PE ratios were out the window in the 1999 tech boom and bust.
Funny how so many people get `buy low sell high` backwards.
Your advice to buy now, take the hit of 20% to 50% devaluation because history will repeat itself were famous last words in every economic downturn in history, and history is repeating.
I’m very nervous about the upcoming crisis. As an average middle class person what can I do to avoid losing my house?
Make your mortgage payment? Seriously, get rid of all debt and pay yourself first by saving 15% of your primary income.
If we do encounter tough times you will have staying power.
On the income side it’s a good idea to keep your eyes open to multiple income opportunities. Depending on your skills you could create some backup plans or secondary income in case your primary job is ‘re-organized’.
I used to work for H&R Block in the spring and save all the money, now I have other part-time gigs appart from my full-time income and save 100% of that money for longer term goals and also rainy days.
When gasoline was 35 cents a gal, dozen beer 2.10, pak of cigs 35 cents, bottle of wine 90 cents, a meteor car brand new 2500 dollars, a new home 20 grand. earning 400 buck a month was BIG. CBC was the one channel on TV from 1700-2300. Everybody was an authority on the next step. The doom and gloom was to hit us tomarrow. How did we survive?
Today everybody is an authority on the next step into the future. Global tv coverage, intenet, cellphones, 24/7. Same old for the doom and gloom. How will we survive?
Speculation has changed the purchase of a home from a lifestyle decision to a game of greater fool – someone always loses.
I always wonder why property taxes go up year after year. In our area there is constant construction of new homes, townhouses, and condominiums. This to me is more revenue via new city tax payers. With that the ever increasing value of exisiting homes. Since the property values are the thing being taxed, that would be more revenue for the city as well year over year. But with all this increasing revenue coming in there is still more being spent and the city has to raise taxes for all home owners every year. Quite often infation is the excuse for the needed increase. How can it be possible for a city to get more money every year and still over spend to require a tax increase to make up for the cities costs due to infaltion. When property values go down I would anticipate the cities would have to increase taxes more to make up for the shortfall.
what can I do to avoid losing my house?
By Andrew M on 04.04.08 11:50 am
The Conservatives, Bloc, NDP and even the Green Party have no viable plan, just pie in the sky, `we are insulated` or `we can sell new green products to consumers with maxed out credit cards`. Cdns owe more than $100B on credit cards alone, some plan.
The Liberals have a plan which they will release after the writ drops.
Can you wait that long?
“Slurs and moral outrage are the cocaine of the political class. Of course, they matter.”
“More important, of course, is the price of a bungalow.”
“…we are not Iceland with trees. Iceland has excellent governance and clever policies. We have trees.”
By Herb on 04.04.08 7:58 am
Well pointed out, Herb.
Good govt. means keeping citizens informed on the necessary day to day stuff, not being like dead tree trunks (which is what Canada has now).
CRAP has this “tree trunk” view, and now it is time to gather these pieces of deadwood, begin a giant bonfire, with all the wood being CRAP!
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After yesterday’s front page on the KDC, (home sells for $7.2 mln.), possibly an NHL player, another home sold for $7.4 mln.
So the record lasted one day, and again, this time a Vancouver businessman who wants no publicity, will only be here during the summer, according to the agent.
This leads to the question, which is the the title of Garth’s book: How many greater fools actually live in Canada? There sure seems to be a few nutheads around here, spending money as if it is going out of style. There’s hope for me yet!
. . . do you hear about this in Parliament? I didn’t think so.
CRAP does an excellent job of intentionally misleading and distracting the majority of the population by NOT focusing on what is important, and that is the economy.
Instead, folk have become accustomed to venting about Af’stan, the environment, etc., that they have forgotten to take care of themselves and their immediate families, by putting money aside for a rainy day. The sun doesn’t always shine.
“Canada’s housing market remains on solid footing. With the notable exception of a handful of small western cities, the country has returned to an environment characterized by moderate price increases,” says Phil Soper, LePage CEO, in a single-voice media article.
Obviously he hasn’t heard of BC, and this is the type of statement that gives men (in general) a bad name, as some men are such pathetic dumbasses they really have become aakin to a broken down traffic light.
What most BC’ers already know is that there is BC, the Rockies followed by TROC, and possibly he hasn’t ventured out this far!
On a different note, for music (rock) fans like myself, it is nice to see that Nick Mason, drummer with Pink Floyd saying that the band will, or may tour again soon.
Pink Anderson and Floyd Council — two obscure American blues musicians; both lived in the Carolinas, both passed on in the mid-70s, yet Syd Barrett liked their music so much, he named his band ‘The Pink Floyd Medley’ after them.
Rock on!
He then went on to inform me, that he now got the bulk of his income from the government who paid him to leave land fallow or to only plant certain crops. He summer-fed around 50 head of cattle which, he told me, gave him enough money to pay for his hobby which was raising pheasants. He was debt free and living off, as he said, “fools like you who pay big taxes so I don’t have to work the land.”
By Powell Lucas on 04.04.08 12:31 pm
You bought that story?
Sounds like a happy farmer to me, unlike most of them.
Where do you think he would be if the government didn’t return some of his tax money in the form of support? I’ll tell, he’d be feeding pigeons and complaining all day long about a no good government just like they’re doing now.
Ron p
“So a young couple has a choice. They can rent out of fear their home investment will not generate long term gains. Or they can purchase with no down payment amortized over 40 years and trust history will repeat itself. ”
Janice, here’s a fictional scenario:
1. House prices increase 90% in 10 years
2. Young couple buys a house with 40-year amortization and 10% down
3. Economic or housing market problems cause housing bubble to burst; values decline 20% or more in 2 years while the logjam clears
4. Young couple now carries a mortgage on a house that far exceeds the value of the house
5. Every mortgage payment made by young couple for the next few years evaporates into thin air to pay back the bank for evaporated wealth. If values drop much further, bank comes looking for additional collateral.
5. One half of young couple loses their job (already happening in Ontario)
6. Energy and food price inflation cut into funds available to pay mortgage (already happening)
7. Young couple can’t make payments anymore
8. Young couple is foreclosed on, losing all money invested in the house to date and with a ruined credit record
Of course, young couple doesn’t remember the times that things like this have very definitely happened before. That’s why they have parents and elders to offer guidance. Unless those elders are real estate agents or predatory lenders.
One point I forgot about — in a column today, the writer reports how the US economic meltdown, along with foreclosures, means significantly less tax income for cities to spend on municipal projects (roads, sewers, water mains, hydro, etc.).
Cleveland is expecting to take around a US$10 mln. loss in projected revenues, so where will cuts be made? What has to be done now, and what can be put off for five years or more?
I’m sure glad I’m not a politician!
“How can it be possible for a city to get more money every year and still over spend to require a tax increase to make up for the cities costs due to infaltion. When property values go down I would anticipate the cities would have to increase taxes more to make up for the shortfall.”
Marc, property values go up, but the tax revenue doesn’t necessarily go up proportionally. Values are re-assessed periodically and if the increase in value of your house is roughly average, the dollar value of your taxes doesn’t go up because of the reassessment (though likely would go up because the town/region increased their budget).
Property taxes in many municipalities don’t cover the cost of servicing the houses covered by those taxes. They rely on development charges from new development to supplement the property tax income and when development slows and development charges income declines, they have to make up the difference by increasing property taxes.
New development often doesn’t pay for itself. It doesn’t pay for the infrastructure required to service it. The developers often argue that having development pay for itself would make houses unaffordable (and that “more competitive” regions that don’t make similar adjustments will get the sale instead).
It’s twisted, of course…. because it inherently proves that our current way of living is unsustainable and there’s rarely a plan to have it be sustainable at some point in the future. Continuous development seems to be the only strategy.
They say that in Heaven there is no beer; so we might as well drink it all while we are still here. There are no collection agencies there either; so the more debt you leave behind, all the better. Written on a headstone: “SUM QUOD ERIS” ie “I am what you will be.” Just remember; 90% of our worries are baseless and thus a waste of mental energy. There are only two thing that you need worry about; 1) Things that you can’t do anything about; so what’s the use of worrying? 2) Things that you can do something about; so stop worrying and do something. Life is good!!!
By Charles Oxley on 04.04.08 2:33 pm
Charles, did you see that 7.2 million house on the news today? The garage has a more money invested into it then I will probably make in my lifetime. Why someone would need marble tile to park their car on is questionable but I guess if one can afford it why not.
By mattbg on 04.04.08 3:41 pm
Thanks for the expanation Matt! Makes a quite a bit more sence to the madness that must be going on in the tax systems we have. Regards
Ontario has lost 400,000 jobs over the last 5 years and were made up by public service hirings. Over the next 5 years Ontario is slated to lose 1M+ jobs while BC has run out of projects waiting for private investment funds for the gateway project, that won`t be coming.
hey buddy, got a dime? on 04.04.08 10:58 am
http://tinyurl.com/6bpteb
Julian Beltrame, The Canadian Press
Fri Apr 4, 2:58 PM
U.S. recessionary winds in March sliced 47,000 full-time jobs from the payrolls in manufacturing-heavy Ontario and Quebec.
“Perhaps you`re too young to remember those exact words were bandied about in 1981 by realtors. You should at least remember when analysts were saying PE ratios were out the window in the 1999 tech boom and bust.
Funny how so many people get `buy low sell high` backwards.
Your advice to buy now, take the hit of 20% to 50% devaluation because history will repeat itself were famous last words in every economic downturn in history, and history is repeating.
By hey buddy, spare a dime? on 04.04.08 12:42 pm”
Hey Buddy,
Can’t says I’m very old but I did have a mortgage in 1985 that was at 13.5%. I did experience Black Monday in Oct 1987.
I stood pat. Investments rebounded to record heights and I sold my home in the mid 90s for a huge profit. Bought another home and sold it in 2003. Bought another and without mortgage have solid investments and a home worth about $400k.
Its all about perspective. Can we expect a down turn in the economy, you bet. Can we expect it to rebound, of course. Thats the cycle.
BTW, I’m not advising any one to buy a property that will lose 20%-50%. Don’t know where you got that from. I’m saying patience is the key.
Garth wants to create a fear so he can blame the conservatives and say the liberals will fix it. Thats just politics. You can’t believe him.
You are an ass if you believe that. This is apolitical. Read my book. — Garth
@Charles Oxley
I throw my windows wide and call to you across the skies. A hearty Rock On! to you.
I never appreciated that Gilmour had such talent until listening to his live performances. At 61 he says that he has found his Paradise on earth. He is content.
You also have an immense talent for observation. Most excellent.
Garth wants to create a fear so he can blame the conservatives and say the liberals will fix it. Thats just politics. You can’t believe him.
By Janice on 04.04.08 4:07 pm
As entertaining and often informative I find Garth, I do my own homework.
While markets do reverse there are considerable issues we never had in the 80`s or 90`s.
Would you like to start with the Cdn $100B credit card debt or go straight to how declining global demand will slice revenue to government?
By Janice on 04.04.08 4:07 pm
I don’t think one can blame the CPC for the downturn in the economy but their fiscal spending is hardly the proper response.
You are an ass if you believe that. This is apolitical. Read my book. — Garth
You’re not much of a gentleman. Why don’t you show where I’m wrong. I’m sure you experienced much the same as I did. You seemed to do ok.
If I buy a house today for $400k and it drops 25% over the next 2 years, what do you think the value of it will be in 2050 if I just live in it and pay my mortgage?
That is a simplistic way to deal with a major investment. It ignores the opportunity cost of the money tied up in this non income-producing asset. In other words, $400,000 invested in a house for 40 years is worth at least $1 million in the lost earning power of that money (at a modest 5% per year, compounded). So, if the home does not at least triple in value, you are under water. More importantly, the house is only worth what someone will pay for it on the day of closing. Thus, homeowners gamble on what the economic and market conditions might be at the moment at which they need to sell. If you think houses will continue to escalate in value, then family incomes must also escalate. Sadly, that has not happened during the housing inflation of the last seven years, which is why prices now are unsustainable, and will be correcting. Get used to it. — Garth
By Marc on 04.04.08 3:59 pm
Hello Marc.
You’re right, of course. If one has it, then why not flaunt it?
There are alternatives, though — there always is — look at less expensive homes (still beyond our means), after which any athlete — like Michael Jordan and Tiger Woods do — would then be able to support disadvantaged kids.
There always will be two sides to every story, no matter what.
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By Pecked to Death by Ducks on 04.04.08 4:10 pm
Hello Pecked.
A couple of days ago, I read in the Daily Mirror’s on-line edition, to a large extent today’s fans still prefer the riffs from the ’60s and ’70s, and Deep Purple’s “Smoke On The Water” topped that list.
Gilmour’s solo on “Comfortably Numb” was ranked best all-time in the UK a few years back.
In 1994, six of us ventured down to BC Place to see them on The Division Bell tour, and they sure pumped the volume up for that!
What a show, though — two giant pigs atop two large towers for “One Of These Days (I’m Gonna Cut You Into Little Pieces)”, a dazzling mirror-ball, high in the centre of the audience and the inevitable large, round screen with the single eye looking at everyone.
Great show!
Here’s another option.
A couple could rent an apartment for what they would pay in a mortgage. Take the property tax, home maintenance, high utilities that one would have been putting into the house and put that into their retirement fund. A conservative number would be about $7000 per year. Add what one would put into their retirement annually, say $2000. After 40 years one would have accumulated a nice little retirement nest egg. No risk in the volatile housing market.
It could work. Problem is, very few are that disciplined to handle their finances in such a manner. At the end they would end up with a fraction of what they could have had and no assets.
We are not talking about buying shares in AT&T and the growth ratio and blah blah blah.
We are talking about basic needs to live. We need shelter. We either rent or we borrow to buy. If it’s the latter, after 40 years, the money you spend in interest and maintenance far exceeds what the market value will be. But they will own their home and it will be worth a lot. There is no other basic need that we spend our resources on that will give us this type of return.
I have never met anyone who has been in the same house for 40 years. The average Canadian moves every eight. Let’s use real-life examples. — Garth
homeowners gamble on what the economic and market conditions might be…think houses will continue to escalate in value, then family incomes must also escalate. Sadly, that has not happened during the housing inflation of the last seven years, which is why prices now are unsustainable, and will be correcting. Get used to it. — Garth
—
Thanks, that really is the basics of it, and in the US real earnings have not even been keeping up with inflation, in fact I think they have been contracting in certain sectors, this I have read in run-downs of Bush and his tragic economic policies.
House prices artificially rise and rise without a corresponding rise in real wages and soon enough individuals can’t actually afford the inflated housing costs. Then prop up this unsustainable model with the current sub-prime fiasco which allowed individuals to continue to bridge this gap allowing the farce to continue for a bit longer, exacerbating the fundamentals problems even more so, and then poof the whole house of cards whose foundations were shored up with paper CDO’s comes tumbling down. wow.
I have never met anyone who has been in the same house for 40 years. The average Canadian moves every eight. Let’s use real-life examples. — Garth
My parents have, but thats another story.
Over the course of ones life, one will always live in some type of shelter, whether it be in multiple houses or one.
I don’t think anyone will disagree that there will be a correction in the housing market as it is today. The point is, over a 40 year period one could expect their property or properties will appreciate in value. The return on investment is poor if it is intended to be a revenue generator. However, that is not what one’s place of residence is. It is a home that we intend to use as an asset when retiring.
I haven’t read your book, Garth, but if you have other options maybe you could wet our appetite with a few tidbits.
Of course prices rise, so long as the economy expands and there is inflation. But that does not mean it was any easier for a young couple to buy a home in 1968 than it is today. The relativity of price to income is what determines affordability. Your view is naive. — Garth
I have never met anyone who has been in the same house for 40 years. The average Canadian moves every eight. Let’s use real-life examples. — Garth
While this may be the “average” does this not say more about the kind of economy that had been created by job insecurity?
There are many Canadians who are not “average” and who have lived in the same house all their lives such as my parents who have lived in the same house for 61 years. These are real people with real experiences that should not be dismissed by a focus on averages.
The problem in our society may be far deeper than the problems in the housing market. I suspect it is only the tip of an iceberg.
The new global economy, supported by both Conservatives and Liberals, promises job insecurity and a constantly mobile lifestyle along with the destruction of community values and the concentration of self-interested individualism rather than a self-interest supported through community membership.
Your parents are weird. But in a nice way. — Garth
But they will own their home and it will be worth a lot. There is no other basic need that we spend our resources on that will give us this type of return.
By Janice on 04.04.08 5:48 pm
You do have a point on return.
In fact US equities fell farther in the last quarter than US home values. Even in the face of further declines global equity markets have lots of gamblers. Isn`t buying a declining asset gambling on a rebound and isn`t gambling on a rebound too much risk for the ave young couple, especially when current markets in everything from commodities to housing are reflecting speculative values and not demand?
What do you know the numbers aren`t showing that you`d encourage young couples to gambler their future on? Specifically the cost of goods, services, energy, property taxes or even cash on hand of consumers.
Do you have knowledge of the Liberal plan they are keeping secret?
Well, I guess there is hope for the Libs. yet, be it federal or provincial.
http://tinyurl.com/52xq9m
BTW, are people aware that the jobless rate in Canada is now 6%?
Report (by the CBC) said that the US downturn is now starting to hit home in the Maritimes, Que. and Ont.
Took them a while to figure that one out!
Thirty per cent is a downturn, but a crash? Methinks the Daily Mail is overextending itself once more.
It only hurts if one sells.
http://tinyurl.com/2m3bdc
Get used to it. — Garth
By Janice on 04.04.08 4:30 pm
….or, you can also look at what shelter is worth. The average rent in my area for a decent house is around $1000. per month. $12,000. per year X 40 years = $480,000.
So if you pay $400,000 for a house live in it for 40 years, sell it for $400,000 plus interest you may have paid; you are still up $480,000 ~ no one lives for free, but essentially, you have lived in that house for free. No? Leasa
I guess I too live in an unusual neighbourhood; damn near everyone has lived in their homes for 15 + years, some for decades.
Anyway….
What, apart from selling their houses, with a long closing, should the thousands upon thousands of homeowners do to avoid the abyss?
There seems no shortage of pundits pointing out the symptoms, however how to resolve the matter, not so many.
I have moved 9 times in 46 years…and thanks be to God, I don’t have a mortgage, in fact, if I had one on my pension, I wouldn’t be able to eat…please send money!!!! lol….
So what’s the big deal? This means the cost of housing will become more affordable for more people. And if you want to move every 8 years, so what? You pays your money, you takes your chances.
I’d imagine the problem is that all sorts of sectors in our economy; governments, real esatate agents, homeowners, etc. have arranged their plans on the idea that house prices will always drive upwaerd and they’ve pretty much painted themselves into a corner. The reality is that a decrease in housing prices is quite probably a good thing; if nothing else it’ll put a little balance into the “income/house price” balance, however there are a lot of folks who’d be hurt if it happens and so nobody will actually advocate for it.
So what’s the big deal? This means the cost of housing will become more affordable for more people.
By Henry on 04.04.08 8:16 pm
Excellent question Henry.
I believe the big deal is how our economy and the US economy has been running on inflating house prices used to pay off the credit cards. Not as big a deal in the US as here because for us it means not only restrained spending here but also fewer jobs linked to the US economy as credit cards are now maxed and useless in both countries. Combine that with the inevitable results to our commodity based economy and Canada is going down farther than the US economy with a much longer turn around time.
It will mean housing becomes affordable until it matches what the consumer can spend, which is already at historical lows.
It appears Canada will be lucky to get away with a 10 year 80`s style economy when we could be headed back to the 30`s. Perhaps you`re right, not such a big deal.
The US owes more than a trillion $ on credit cards. Canada owes more than $100 billion per capita, that seems equally a `big deal`.
Here`s an analysis of US credit card debt, Canada keeps these numbers secret but it`s happening here.
Between April 2006 and December 2007 inflation-adjusted credit card debt increased at an annualized average monthly rate of 4.7 percent-more than four times faster than the annualized average monthly rate of 1.1 percent between March 2001 and March 2006,
By December 2007, credit card debt relative to disposable income stood at 9.1 percent. 15.6 percent of the lost access to mortgages was compensated for by increases in credit card debt after the spring of 2006.
In December, an average of 7.6 percent of credit-card loans were either at least 60 days delinquent or had gone into default, up from 6.4 percent a year earlier.
35 percent of active cardholders already pay late and/or over-the-limit fees, among the most costly fees associated with credit cards.
I think what Garth is trying to say is vote Liberal in the next election and all these problems will go away.(they have all the smart guys with all the great ideas you know Brison, McCallum, Turner, Rae, Goodale and of course the professor). I would like to know if he would be talking up this doom and gloom if the Liberals were the government or better yet if he was still a conservative? Just thinking out loud.
I understand the theory. However, I wonder how prices can go down when there is a shortage of housing in the GTA. People need to live somewhere.
Not everyone lives in Toronto or Vancouver.
Hi Garth,
I’d like to see some politicians raise a stink over CMHC’s loosening lending practices. eg, 40 yr mortgages becoming the norm is so wrong. What can be done? Who has the will to look at this problem? What can I as a mere voter, taxpayer and renter do to nudge things to a more sustainable path?
Thanks for any insights you may wish to share.
Because advertising is a major part of media income, it’s no wonder they seldom
warn people about the true real estate
situation. For the most part, they report what people in the business tell them and give a few charts etc. but not many really informative articles.
The Toronto Star, however, did publish some relative residential prices and rates of increase/decrease just a day or so ago. It was a pretty good piece on current real estate prices across the country etc.
Garth’s book should help inform a lot of people’s thinking about what they are doing re: housing but, unfortunately, some of those who need it most probably won’t even know about it.
If they are pinching pennies by not getting a newspaper they will know less. At least in the newspaper one
would see how the economy is faltering and that a lot of people are losing their jobs.
It’s very difficult now to know who to trust when one needs financial advice.
When one’s income depends on sales,I guess people find it hard to be honest.
Others take their direction from superiors and don’t know they are duping the public. I feel sorry for the poor, young kids who trust a needy realtor or financial adviser.
(Why is my spell-check telling me I’ve misspelled realtor? My dictionary is so poor and old. Maybe my kids will give me a new one for my next b’day.)
Cheap Pat G.
Tony Wong’s article in the Toronto Star, to which Garth gave a link, was another interesting article on real estate. I shall pass it on to my kids in case they missed it. (..after saying in my previous post that there weren’t many good articles on the subject)
….or, you can also look at what shelter is worth. The average rent in my area for a decent house is around $1000. per month. $12,000. per year X 40 years = $480,000.
So if you pay $400,000 for a house live in it for 40 years, sell it for $400,000 plus interest you may have paid; you are still up $480,000 ~ no one lives for free, but essentially, you have lived in that house for free. No? Leasa
By Leasa on 04.04.08 6:51 pm
Drugs must be cheap in your neighbourhood too Leasa, or are you really so stupid? What have you been smoking? Not BC Green obviously.
I have to ask Leasa… Have you ever lived alone, on your own, paying your own bills, making your own way? Or did you marry right out of highschool and left it all to him? You also did lousy in Math, yes?
Geo
Garth, tell me something… what is the difference between paying for a 400,000$ mortgage payment and a 2,200$ per monthly rent payment?
People have to live somewhere. So are you saying that people should just pay rent and never try to build up their equity? And I don’t believe that people should just invest in stocks – as we know stocks can go belly up (i.e. Nortel).
Good Morning:
Reading many of the above financial wizards from above, it seems to me some of the 85oo tons of dope has made it’s way into Canada. Just kidding folks. The point Garth is trying to make is far too many people have failed in their initial assessment of the future, place all their eggs into one basket ( Their House) falling for realtors who said buy now, borrow high, do not put big down payments down, and yes put their faith into an untested government that would not and will not listen to the world around it! That being said, it is too late for those who have done so, is there hope, perhaps not, selling your home at a loss giving more money to realtors and lawyers, giving away furnishings and maintenance equipment for a song plus the mental and physical stress of it all is not good news. I believe that some people will find the answer, it’s called survival and trend setting, Garth has mentioned some good ideas (freely) for those few who can listen and make sound moves, many will heed the advice, I know and see many who are doing so. Others on the other hand will continue to put their faith in Flaherty (25% of 32%) the other 7% will listen to Garth and curse him under their breath while accepting his sound financial advice. (false pride types) The storm wave is coming, I have reports that even the big banks have given notice(s) to some overseas employee’s. Why, because people are not buying south of the border investors are feeling the credit crunch, coupled with the fact the US Canada and Britain want more money for the Winds of War which does little to help at home. So what to do? Enjoy life and do not make any big moves without full investigation, get second and third opinions, do your home work and look ahead and most of all do listen to Flaherty and Co because they need all our money for Harper’s War Efforts.
The smugness expressed in many of the posts to this topic is revolting.
It is very stressful when you find that you can no longer afford to make the payments on your house because your income has gone down considerably, and you cannot find a buyer.
There is a grave danger that this scenario, which has happened many times in resource-based communities when the mine closes or the paper mill shuts down, will be happeining to many in greater Toronto, Vancouver.
When this happens there is a great rending of the social fabric – domestic violence goes up, crimes against property goes up, prostitution goes up, drug and alcohol abuse goes up, suicide goes up, child abuse goes up, divorce goes up.
Yes, it eventually shakes itself out, and there are bargains of all kinds to be picked up while the shaking is going on.
When it comes to choosing a strategy for dealing with these human catastrophes, I suggest that the overall cost to society of operating a safety net and repairing the little injuries that result is less than the cost of treating the massive injuries that result from having little or no safety net. It doesn’t matter whether society installs a safety net system or not – society will pay now or pay later – but it is guaranteed that society will pay.
Henry: “So what’s the big deal? This means the cost of housing will become more affordable for more people.”
Henry, I suppose it’s true that housing becomes nominally more affordable, but what it also does is push the overall price of housing up for those that can afford it on traditional terms (and, ironically, also for those that can least afford it) by adding more demand to the market.
By Georgine on 04.05.08 3:11 am
Good morning, You are one very nasty bitter woman. Your reply is not even worth a retort. L
By Georgine on 04.05.08 3:11 am
Good morning, You are one very nasty bitter woman. Your reply is not even worth a retort. L
By Leasa on 04.05.08 8:02 am
Cats and dogs at it again?
Cats (Lib), Dogs (Cons) Garth’s words.
I thought you were leaving Leasa? Flight canceled?? Try Trans CONtinental next time.
They have a Reefooormed staff and state of the art barf bags.
At all cost avoid travelling on a Liberial Tanker. Their ships have a reputation for leaking things, they can’t decide who is going to be the Captain, and the staff are notorious for doing nothing or not showing up at all.
So if you pay $400,000 for a house live in it for 40 years, sell it for $400,000 plus interest you may have paid; you are still up $480,000 ~ no one lives for free, but essentially, you have lived in that house for free. No? Leasa
By Leasa on 04.04.08 6:51 pm
Actually no Leasa for several reasons. Depending on the interest rate, interest alone would be double the payment you suggested (“$12,000. per year”). Even if the great number of people that can`t afford managed to hang on they still stand to lose 25% of the value in the predicted market collapse. For new buyers, if they wait 12 to 18 months they would be a lot closer to your numbers with a price reduced $300,000 (or lower) home.
If you really need to know how bad the housing situation is look to our federal governments position. Many warnings have been issued by others from a slowing economy to more jobs lost. Ontario lost 47,000 in March alone and yet our economist leader is ignoring the housing situation. If a bandaid or waiting it out would work we`d have leadership and direction from Mr. Harper, other than to indicate the federal government and our financial institutions have lots of money and if our financial institutions run short, our federal government has lots. The silent treatment on the individual situation of the great many 40 year 0 down cash strapped home owners gives the game away. They are speechless, confused and in hiding.
Garth has a plan, here`s some recent entries.
http://www.garth.ca/weblog/2008/03/30/letter-to-constituents/#comments
“In short, we need hope. And hope needs a plan. Soon you will get mine.”
posted by Garth Turner on 03.30.08 @ 9:52 am
http://www.garth.ca/weblog/2008/04/01/across-the-hall/#comments
“it is an opportunity I relish – a chance to work more directly towards the Canada that I have always sought. Conservative in economic and fiscal management, liberal in its embrace of change, progress and social evolution, caring and principled”
posted by Garth Turner on 04.01.08 @ 10:50 pm
By buddy, spare a dime? on 04.05.08 10:58 am
Pssst – don’t buy Nortel.
Pssst – don’t buy Nortel.
By Catherine on 04.05.08 11:24 am
Did they cook the books again?
Well no worries as long as US justice does not catch them.
Pssst – don’t buy Nortel.
By Catherine on 04.05.08 11:24 am
I know you`re referring to the recommendations by Garth on Nortel when it was flying high. Personally I think it`s a cheap shot at Garth`s as yet unannounced plan. Keep in mind Garth is the only politician that has stated there is a plan. I`m willing to judge Garth`s plan on it`s merit and not how Nortel cooked the books like Enron. There is no doubt we are facing a crisis that could easily top the 80`s and even resemble the 30`s and as yet the government has yet to even mention a plan on how Canada will deal with it other than they have lots of money.
If it`s a good plan, good for Garth. If it`s a cheap political trick then a few more card carrying Liberals will tear up their memberships.
Garth, just like our government, knows what`s at stake.
Thankyou David Bakody and Buddy,Can You Spare a Dime- refreshing reading,bro`s! And GEO- ya calls it like ya sees it! The cons arrogant, arbitrary ways are quite transparent, no? So they have Transparency, Accountability…let`s see…oh ya, Accountability W/OUT CONSEQUENCES = Mr. Harpers` NEW CANADA. Welcome – if you can get past FINLEY,FINLEY,FLANAGAN&BRODIE. Don`t worry, good people, the Majority of Canadians have the POWER OF THE PEOPLE on election day. I believe you, Buddy, “Garth, just like our government, knows what`s at stake”! I will put my life on the Principles and Policies of LPC,fight for them, and I believe our Honourable Host will do the same. I call it solidarity…they call it `stick to script` or `just don`t show up`- committee meetings, contempt , f`cryin out loud….there`s just too much. Keep shining Garth! They don`t own the words, or the definitions, or the terms of the fight…they do own their consequences,though!
Sorry for going off topic…it`s all connected-in my mind, anyway. Sorry. I liked what you said about the Human suffering, William. Thanks.That`s why i fight.