# Garth Turner's HouseAggedon



## Berubeland (Sep 6, 2009)

I went to Garth Turner's speech last night and he's a lot less controversial in person, he's a good speaker and makes some valid points. The most valid one being that it's not a great idea to have all your financial eggs in one asset class ie. your personal residence. People should also have financial assets. 


http://landlordrescue.ca/garth-turner-houseaggedon/

I'm not sure why people consider this so controversial


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## Jungle (Feb 17, 2010)

Remember this:

Garth: "If you do not own Nortel, then this is the time to start accumulating it"


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## HaroldCrump (Jun 10, 2009)

This guy is hilarious.
He provides pure entertainment value and nothing else.
His record as an MP is equally hilarious, esp. his party-hopping.
He is always one step behind in economic advice.
Like the Nortel thing (telling people to use their HELOCs to buy Nortel stock just before the started to fall apart).
He was also telling people to sell bonds early last year, when it was perhaps the best time to buy them.
I sometimes read his blog when bored for pure shock & entertainment value.


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## FrugalTrader (Oct 13, 2008)

Note that the guy is trying to sell books as well, so he needs to stand by the real estate apocolypse theory.


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## Jon_Snow (May 20, 2009)

I would say its in Garth's commercial interests to stir things up... but I'll say this: I agree with him that those Canadians who bought "too much house" while interest rates were at emergency lows are going to be in a bad place when they come to renew their mortgages.


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## Berubeland (Sep 6, 2009)

Actually the blog was a lot more controversial than his speech, there were 0 sales, he didn't even bring copies of his book to sell. Right or wrong, he just seems genuinely concerned. 

I've seen a lot of folly out there myself.

One time I rented a place because the owners were leaving for Australia. It was 6000 square feet of house, 7 bedrooms, one office, two living rooms, two laundries, 2 car garage, dining room, family room and 5 bathrooms. A couple lived there, most of the rooms had no furniture, and they kept the place in the winter at about 50 degrees. The elderly lady comes to meet me wearing three sweaters, she's freezing to death. 

I rented it for about $2500 per month and it still didn't cover their expenses, that's ok it's an investment, they told me. I had to call them before every showing so they could turn up the heat. It was too expensive to heat. Every time I left that place I was grateful for my small hovel, not impressive but warm.


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## Sherlock (Apr 18, 2010)

Why didn't they install wood stoves in a few of the rooms, that woulda kept the house warm for cheap.


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## sags (May 15, 2010)

Why don't they just extend amortization to 100 years at a fair interest rate, allow no equity withdrawals, do not allow the home to be used as security for any other lending, and cap the future selling price at a 1% increase each year.

Sounds like a plan to me.


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## furgy (Apr 20, 2009)

Sherlock said:


> Why didn't they install wood stoves in a few of the rooms, that woulda kept the house warm for cheap.


because they didn't have a big buffoon like you to go out and cut firewood for them.


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## crazyjackcsa (Aug 8, 2010)

Sherlock said:


> Why didn't they install wood stoves in a few of the rooms, that woulda kept the house warm for cheap.



Because you need to run the venting for each woodstove, and then find enough wood to keep them going.

I got a price on a woodstove last year. The woodstove was going to run about 2 grand, the venting was another 3k to run it up along the outside of the house.

So for 5 thousand dollars, I can try to find cheap/free wood, split and season it. 

No thanks.

Bought a gas fireplace instead. 3k installed and uses about 100 dollars worth of Natural Gas a year.


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## dogcom (May 23, 2009)

I would say you would have more to worry about then just the value of your house if jobs and everything else goes in the toilet. I would think you would need to be in cash and mid to short term bonds as the deflation wave goes through.

I live in the Vancouver area and housing is to expensive for sure, but if anyone would have listen to Garth and his house price falling comments over the last 10 or so years they would be in trouble. Even if prices fell in Vancouver those people who left 10 years ago would still probably not be able to afford to buy in Vancouver.


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## dogcom (May 23, 2009)

Well now Vancouver is even more unaffordable, so much so I don't even know what my house is worth. I give it a sale price today of between 1.2 million to 1.7 million as the only house in my area I can find is selling for 1.7 million. And by the way I am talking about Richmond BC not Vancouver which is much higher. If Toronto is seeing the same thing then Garth is more wrong then ever as my last post o this thread was 2010 which seems hard to believe.


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## Causalien (Apr 4, 2009)

dogcom said:


> Well now Vancouver is even more unaffordable, so much so I don't even know what my house is worth. I give it a sale price today of between 1.2 million to 1.7 million as the only house in my area I can find is selling for 1.7 million. And by the way I am talking about Richmond BC not Vancouver which is much higher. If Toronto is seeing the same thing then Garth is more wrong then ever as my last post o this thread was 2010 which seems hard to believe.


1.4 million is the going rate for a detached 2000 square feet house with 5000 square feet lot. A newly built monster house has to hae $700 000 material and contractor cost added on to it by the developer. Financing and all the overhead with realstors and we are stepping into 2.5mil territory for a new house.

Now, with the recent rush of chinese money outflow, we might be seeing that money slushing around in the summer. That, along with the potential for interest rate to go to zero (even garth is preaching this....) and we have a perfect storm in 2016.


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## sags (May 15, 2010)

My wife's cousin lives in West Vancouver.

We have never visited, by the brother in law has and says it is pretty nice there.

An interesting home and story to it.

If it wasn't for our son and grandson, we would be heading out there for the rest of our retirement. It looks pretty nice around that area.

I can see why wealthy Chinese are buying it up. What is a couple million here or there to them.

https://westvancouver.ca/sites/defa...o. 4785, 2014 (for 6003 Eagleridge Drive).pdf


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## dogcom (May 23, 2009)

Causalien correct me if I am wrong but from what I know of Asian buyers is it is better to have an older though maintained house to sell then a newer lived in house. My house is older and my lot is larger then 5000 sq. feet so I am maintaining it so it can be sold to live in with no problem or to take it down. I would think the same may apply to the Toronto area as well since many here are from there. And like here they can't really make any more detached houses because of the lack of land to sell.


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## LBCfan (Jan 13, 2011)

Your house is worth whatever someone will pay for it. No more no less. You won't know its worth until you try to sell it and get an offer.


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## Karlhungus (Oct 4, 2013)

In regards to garths myth busted statement about Canada not having a US style crash due to Canada having "stricter lending standards". It's all about a borrowers abiltiy to pay back the loan. A 0 down 40 year mortgage has no bearing on that. In the US they were lending to people with sub 500 credit scores, of course they weren't gonna pay the loans back. Try getting mortgage in Canada with scores like that, no chance.


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## Rusty O'Toole (Feb 1, 2012)

When has Canada ever had a real estate crash? Seriously, tell me. The home ownership and mortgage system is completely different here in Canada. All the pundits have been talking about a real estate crash since 2007 when the US dropped 40% to 50% in some areas. Canada dropped about 10% and recovered a month later.

I am not talking about Toronto, Vancouver, Calgary, or one of those northern mining towns where the town's one industry shut down. You could mark those areas on the map in red, step back 10 feet and you couldn't see them. By the way Calgary is one of those one industry towns and so is Fort MacMurray. Their RE values will take a beating as long as the oil industry is in trouble. That is not the same thing as a nation wide RE crash.


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## fraser (May 15, 2010)

Calgary real estate may not 'crash' per sae but there have been a number of times when it has dropped. 2008/2009.

And now.

So, we are in the Calgary market. We sold 2 1/2 years ago. We were going to downsize and buy again but we got turned off with the bidding over list issue. We decided that we did not want to buy when everyone else was buying.

So this morning we saw a listing for $689. At time of build, 2 1/2-3 years ago it was selling for $800 plus any builder add ons like a finished basement. In Dec. 2014 we viewed a home that had been reduced from $629K to $609K. One year later it was empty and listed for $549K. The one beside, almost identical, was listed at the same time for $525K. A home we viewed six months ago was $669. Went down to $639 two months ago. Today it was re-listed for $599K.

We are going away for a few months. The pundits agree that there will be another drop in prices between now and spring. Two reasons. Separation packages and EI is running out for many. Sellers are adjusting to the new market price realities. One real estate franchise closed on 31/12. Six offices in the Calgary area, 160 plus realtors. They announced it mid Dec. and closed up shop two weeks later. Not because business is good.

Not sure what is going down in the sub $500K market. The condo market is dropping quickly. An article in the Calgary Herald a few days ago mentioned an interview with a local mortgage broker. He cited a property that that he was familiar with. It was appraised three years ago at 2.5. It was recently appraised at 1.5


Some people may not view this as a housing bust but my guess is that the owner/sellers of these properties may have a different perspective.


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## Berubeland (Sep 6, 2009)

Housing busts cannot happen in Canada, so the rest of Canada is going to give Calgary to the United States. Also too much cowboy at the Calgary Stampede.


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## mrPPincer (Nov 21, 2011)

^ That would put a bump in the map, besides, what do we get in return?

I have an idea, how about that string of coastline south of Alaska?


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## Berubeland (Sep 6, 2009)

In return we get to keep our delusion that real estate in Canada is not completely divorced from economic fundamentals.


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## vi123 (Oct 29, 2015)

Karlhungus said:


> In regards to garths myth busted statement about Canada not having a US style crash due to Canada having "stricter lending standards". It's all about a borrowers abiltiy to pay back the loan. A 0 down 40 year mortgage has no bearing on that. In the US they were lending to people with sub 500 credit scores, of course they weren't gonna pay the loans back. Try getting mortgage in Canada with scores like that, no chance.


Are you sure about that?
http://www.huffingtonpost.ca/2015/0...ght-of-broker-fraud-allegation_n_8052934.html


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## Berubeland (Sep 6, 2009)

Well it's very simple, those 45 brokers that Home Capital Group let go are still working, they are still originating mortgages they are just not funding them at HCG. They were not reported to FSCO, they were not punished in any way, they were not identified, they did not lose their mortgage license. 

They originated over 2 billion in mortgages for HCG. 

I myself, lowly property manager, have been asked for blank leases from my clients. I was instructed to send them direct to the mortgage broker. 

Mortgage fraud does happen a lot and what is happening in Canada is very similar to what happened in the States. If everyone just fudges the truth a little bit, you wind up with a big disaster. Overstating income, minimizing expenses, lying about down payments. 

And it is total bullshit that they call every employer. I know the principal of a document checking company and they are having problems getting major banks to sign on to do their document checking, because in a rising housing market they don't lose money or/and they don't lose enough to make document checking worthwhile. Mortgage loses are tiny at this point in their portfolios. 

First of all because people are doing whatever they can to hold onto their house, because you can get a heloc or second mortgage without even sweating it, and because house price keep going up. If house prices go down, people are going to do what they did in the States and strategic default, they won't be able to get a heloc or a second mortgage, and we will start to see some serious problems.


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## Just a Guy (Mar 27, 2012)

The housing crash has nothing to do with outside buyers (it's still a lower number than those owned by Canadians, despite everyone's paranoia). It all comes down to simple math.

The average Canadian earns just under $50k/year in 2015 according to stats Canada. The historical average mortgage rate is 8%. He average house price in Canada is $433k in 2015.

Now, the average monthly mortgage payment for 433k @ 3% is $1,950/month assuming a 5% downpayment. That's $23,400/ year or nearly 50% of the average income (before taxes). Let's assume it's a two income family, so it's only 25% of the family income (before taxes). 

Now, what happens WHEN we start to increase interest rates, it's happened in the states, we usually follow. Let's say we increase .25%/year (1.25% by the time of renewal). Monthly payments jumps to $2,220/month or $26,640/year). If it goes Back to the historical rate of 8%, the payments jump to $3140/month or $37680/year nearly 40% of a combined income (before taxes). 

Who's going to buy the place for that price if their income hasn't increased or increased only wig inflation?

Prices are driven by supply and demand, if interest rates go up, the prices of homes will fall. It's the reverse of what drive prices up. As interest rates dropped, people could afford to pay more for houses. 

The historical price of homes, which were affordable at the historical interest rates was 2.5 x annual income. If a combined income is $100k, then the average house price should be $250k. I could easily see a correction on the order of (433k-250k)/433k or 42%. 

These numbers are based on the real numbers that Canadians can afford, not pie in the sky, wishful thinking, by people who prefer to say "real estate can't crash". The numbers don't lie, if interest rates go up, housing will correct unless salaries suddenly go up astronomically to accommodate the rising costs. People, unlike governments can't produce money out of thin air.

P.S. Remember, these numbers assume that these same people will even have jobs as the interest rates rise. A lot of businesses, as well as the governments are very heavily in debt...addicted to nearly free borrowing costs. How much will the economy suffer if these debts suddenly cost a lot more?


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## Causalien (Apr 4, 2009)

dogcom said:


> Causalien correct me if I am wrong but from what I know of Asian buyers is it is better to have an older though maintained house to sell then a newer lived in house. My house is older and my lot is larger then 5000 sq. feet so I am maintaining it so it can be sold to live in with no problem or to take it down. I would think the same may apply to the Toronto area as well since many here are from there. And like here they can't really make any more detached houses because of the lack of land to sell.


You got the Chinese completely wrong. They prefer new houses, new things untouched by others.

So a newer lived in house is tainted just like the old house. Except a newer lived in house is more expensive. That's why they prefer old houses. Cheaper, they can have their childeren live in it for university and then tear it down to resell. 

If you know chinese developers, they do not distinguish between older tear down or older well maintained houses cause they will all be torn down. So really, it all depends on whether or not the people who are viewing are parents or developers.


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## Berubeland (Sep 6, 2009)

Finally Just a Guy and I agree. 

I'd like to add that there is a drastic over supply of condos in Toronto. Population growth is nominal in Ontario. We don't need 30,000 condos per year. Now the developers count them as fine as long as they sold it to someone. Unfortunately those investors now have to deal with renting out their suites in a auction like atmosphere something that they may not expect after having been misled into thinking that vacancy rates are low by CMHC. 

CMHC now calculates vacancy rates (unlike any other country) by counting all condos including owner occupied into their vacancy rates. Traditional and correct vacancy rates include only condos in the rental market.


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## lost in space (Aug 31, 2015)

Just a Guy said:


> The housing crash has nothing to do with outside buyers (it's still a lower number than those owned by Canadians, despite everyone's paranoia). It all comes down to simple math.
> 
> The average Canadian earns just under $50k/year in 2015 according to stats Canada. The historical average mortgage rate is 8%. He average house price in Canada is $433k in 2015.
> 
> ...



As the old saying goes the markets can remain irrational far longer than us humans can remain rational! Governments starting with the PCs and continuing with the Libs have been trying to rein in housing market with zero sucess. It seems everytime tweat is like throwing gas on the fire. Honestly even me, Garth's best bro is beginning to question it too - me thinks rather than a correction we'll simply see a sideways market.


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## Just a Guy (Mar 27, 2012)

Governments have been lowering the interest rates since the 90's, so it started through at least 4 different governments, probably more. Back then, it was designed to "stimulate the economy", which it did. Cheap money allowed people to pay more for the exact same product. The government thought this was good. On paper, people feel rich...how many on here brag about the "value" of their homes and how "wealthy" they are because of it.

Yes, I think the government realized what they've done, albeit way to late, and tried to reign in the problem. Hence lending got tighter, amortization times got lower, and other minor adjustments. People only cried foul a little bit, and housing prices slowed in the amounts they've increased. Of course, this is equivalent of closing the barn doors once the animals are already out. Prices increased too far, to fast.

The problem is, the government still needs and wants to increase the interest rates, which math says will destroy the real estate market by upwards of 40% as I showed above. The only way to avoid a crash is to maintain low rates until inflation catches up and normalizes prices...so average incomes need to increase to around $$85k/person (two incomes makes it $170k/year which, if you multiply by 2.5, justifies a house price of around $430k). Of course that means a 70% raise for everyone which is going to take a while...unless someone like the NDP get in and decide to legislate 70% raises (who cares where the money comes from). 

So yes, if the interest rates remain low, the real estate market will remain flat. Of course the public won't be happy if their houses don't increase in value and will eventually start to complain and demand changes. I'm not sure there is much the government can do to stimulate prices, as interest rates are already near the bottom, but I suppose they could introduce multi-generation mortgages and 100 year amortizations.

There is always the arguement that "people have been predicting the crash for decades and it hasn't happened yet", which is true...however, the interest rate hasn't increased in all that time either, which has been the driver for the prices. The minor changes they made to amortizations and deposits, only affected a minor number of potential "bidders", I mean buyers. It was never designed to decrease prices, just slow the increase. There is no way to avoid the decrease if interest rates rise because, if you try to sell it for the price you think it's worth, there won't be buyers there who can afford to finance it at those prices, even if you can afford the payments (because you paid down your mortgage) the new buyer won't be able to as they'd be starting at the beginning. 

People can think whatever they want, but the reality is, you can't hide from math. Many people slept through the class and called it useless...but it doesn't lie, unlike people. I can imagine the conversations at the banks come renewal time...

"What do you mean my payments are going up by hundreds of dollars each month???"

"Well, you see, interest rates have risen."

"But that was only 2%!!! You guys are crooks!!! You're screwing the public to increase your profits!!! The government needs to come in and regulate the banks!!! This is illegal!!!"

"No, I'm sorry but this is simply how the math work..." 

"That's bull!!! I made payments for 5 years, interest only goes up 2%. I got a 2% raise and I didn't get hundreds of dollars more each month."

"But your paycheque is only for 50k, your loan is 500k"

"Your just trying to screw us, if interest rates rose 2%, why didn't the payments only increase by 2%...you're just trying to steal my house from me, what you're doing should be illegal, I can't afford the increase, have you seen the price of food??? I'm going to call for legislation!!!"


Just imagine the conversation with the realtor when they go and try to sell...

"The damb bank is screwing me, they're forcing me to sell my house as I can't afford the rates they offered me"

"Okay, let's see you have an average house, in a good neighbourhood, it's a good time of year to sell...we could list it for $350k, maybe settle for around $300k, then after commission and fees you should clear around $275k"

"WTF??? My house was worth $500k 5 years ago? Are you an idiot? Trying for a quick flip at my expense??? I still owe more than $400k on it."

"No, I'm sorry buy housing prices have taken a sharp decline. With today's interest rates, it's costs the same to finance a house at $300k as it did at $500k a few years ago. People looking for that kind of house can't qualify to pay more. To tell the truth, I doubt it will sell quickly if at all unless we go lower, but I thought we could try for it."

"Your part of it aren't you? This is some sort of conspiracy to screw me out of my house. You're in on it with the banks, they're trying to take all the houses away from people and own everything. Well it's not going to work, the government is going to stop you and the big corporations from taking over the world..."


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## Rusty O'Toole (Feb 1, 2012)

Berubeland said:


> In return we get to keep our delusion that real estate in Canada is not completely divorced from economic fundamentals.


Excellent point. Let's talk about fundamentals for a while. I want all those who believe a nation wide real estate crash is in the offing to help me out here.

Do you believe people are going to stop living in houses and start sleeping in ditches and tents in the woods?

Do you believe Canada's population is going to fall by 10% or more?

Do you believe building materials are going to be substantially cheaper in future?

Do you believe the price of building lots is going to fall to nothing?

Do you believe we are going to have a massive depression with 25% or more unemployment and unemployment insurance and welfare are going to be suspended?

Do you see a massive deflation in all areas or just real estate?

What do you define as a real estate crash? A decrease across the board of 10%, 25%, 50%? How long do you anticipate this debacle will last, what will trigger it and when?

Any details would be welcome.


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## fraser (May 15, 2010)

The banking community in Calgary has been downplaying a significant mortgage fraud scheme in Alberta. Some of the attributes are very similar to what was mentioned in other posts. Lots of reasons that it occurred, including the bank cutting corners on checking mortgage applications, fraudulent lawyers, mortgage brokers, and the usual straw buyers.

It can happen and it has happened in Canada. Perhaps not to the same extent but it is happening.


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## Rusty O'Toole (Feb 1, 2012)

Just a guy I have seen similar scenarios play out and here is what happens.

The seller says "I'm not taking a loss on my house. List it for what I say or I go elsewhere. There are lots of other RE agents" so the house gets listed at an unreasonably high figure and stays there, unsold.

Eventually it gets taken off the market. The seller says "the hell with it. I'm not giving my house away. I will stay here, add on a room redecorate, put in a new kitchen and those crook RE agents can go to hell"

A few houses get marked down and sold because of divorce, death, or other unavoidable circumstances but 80% or 90% just sit there stubbornly refusing to budge.

After a few months or a year at most the emergency blows over and prices start to rise again.

You may see a massive drop in a local market but always with 2 things: first there was a massive boom in prices a few years earlier and houses are way overpriced. Then there is some disaster in the local economy forcing people to lose their jobs and move away.

A general drop in prices across the country is going to require a massive crash in the economy as a whole and I don't see that happening in the forseeable future.


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## Just a Guy (Mar 27, 2012)

Rusty O'Toole said:


> Excellent point. Let's talk about fundamentals for a while. I want all those who believe a nation wide real estate crash is in the offing to help me out here.
> 
> Do you believe people are going to stop living in houses and start sleeping in ditches and tents in the woods?


No, they'd move to a rental property where the costs per month are in-line with what they could afford. Many would probably have to declare bankruptcy to protect themselves from the foreclosures. Look at the USA in 2007. 



> Do you believe Canada's population is going to fall by 10% or more?


No, in fact population will probably increase, however home affordability has nothing to do with population or even supply and demand, it has to do with the person's paycheque. 



> Do you believe building materials are going to be substantially cheaper in future?


Well, there is a chance that, as demand decreases, costs for production would go down but, in general, cost for materials probably won't go down much, labour on the other hand may decrease if unemployment runs rampant. 



> Do you believe the price of building lots is going to fall to nothing?


If there is a glut of used houses on the market, closer to the core of the cities, I think demand for new housing will decrease and thus builders will lower production. 



> Do you believe we are going to have a massive depression with 25% or more unemployment and unemployment insurance and welfare are going to be suspended?


I believe parts of the country are already in depression, some like Newfoundland always seem do be in depression, while Alberta has certainly been hit rather hard and unexpectedly in the last couple of months...could it spread, certainly possible.



> Do you see a massive deflation in all areas or just real estate?


Not all areas are as hyperinflated as real estate. I imagine other areas may suffer, but I don't see many areas which will need to be corrected as much. Remember, oil has already dropped from $110 to under $30 in a year and a bit...for people who think such corrections are not possible.



> What do you define as a real estate crash? A decrease across the board of 10%, 25%, 50%? How long do you anticipate this debacle will last, what will trigger it and when?


I expect about 40-45% is needed to bring it inline with historical averages...of course, if interest rates don't increase to that level, the correction doesn't need to be as sharp.



> Any details would be welcome.


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## Just a Guy (Mar 27, 2012)

Rusty O'Toole said:


> Just a guy I have seen similar scenarios play out and here is what happens.
> 
> The seller says "I'm not taking a loss on my house. List it for what I say or I go elsewhere. There are lots of other RE agents" so the house gets listed at an unreasonably high figure and stays there, unsold.
> 
> ...


Yes, the difference this time however is...people can't afford the monthly payments as they try to hold on. Can you afford an extra $200, $500, $1000/month? Most people, earning $50k/year certainly can't. However, come renewal time that may be what they face.

You'll note, but seem to have missed the point, that I've been saying interest rates are the key to the crash. If they go up, people won't have the choice to stay put...they can't afford to.


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## fraser (May 15, 2010)

We took ourselves out of the housing market.

It was not intentional, it just happened. Homeowners for 36 years. Spouse was very anxious to buy.

The reason? Simple economics. For us it made much more sense financially to rent. And this has proven true for us over the past 36 months.

We had the option. Some people don't...they have to rent.

We lived through high interest rates. I can remember viewing properties with 21 percent first mortgages on them. We bought at 16 3/4 because the rate was zooming down...and it hit 10 3/4 within six months or so. Lots and lots of foreclosures in Vancouver and the Lower Mainland at that time. We bought our first home ( in Vancouver) at that time (thanks to the BC GOv't 2nd Mortgage). The house, when listed, was priced at $139K. We paid market for it...$85K.

At the same time I occasionally had to travel to Calgary on business. I can vividly remember seeing some trailers set up at Heritage and McLeod Trail. They were temporary real estate offices selling foreclosed properties. I was very surprised at this.

Just think what a moderate increase on a five year mortage to say 6 percent  will do to a couple who financed at 2 3/4 five years previous. Or to someone who bought and mortgaged a condo rental property.

I am not saying that there will be a major housing correction but I am also believe that it can occur if the conditions are right.


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## none (Jan 15, 2013)

I too am surprised that I agree with just a guy. I usually think he's a bit bonkers. 

I don't see a large housing correction occurring until interest rates rise a fair bit and a few year lag to weed out the 5 year fixed. Right now when you can borrow money close to the rate of inflation borrowing huge amounts of money makes a lot of sense.


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## davidjean (Mar 27, 2014)

This is exactly why we won't see a housing crash !!!!!

The bank of Canada knows that increasing interest rates would cause this massive depression. 

So tell me ... How can they possibly Increase mortgage rates. ?


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## Just a Guy (Mar 27, 2012)

It will eventually come to the point where they need to choose the lesser of two evils. Other countries are starting to raise rates, we can't remain at zero forever...if we do, and others raise their rates, kiss the dollar goodbye, even the peso would look good. Maybe we could hyperinflate our way out of this mess and our national debt...


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## Pluto (Sep 12, 2013)

In the 70's a good reason to own a house was runaway inflation. The nominal value of houses was going up by leaps and bounds. These days with low interest rates and low inflation, houses still go up by leaps and bounds, at least in TO and Van. Seems like one can't lose. 

The worst time in Van area was of course the 1980-83 era when home prices took a about a 40% dive due to nearly 20% interest rates. But that was short lived. There is nothing like owning a home in a growing metropolis especially if one rents part of it out. If you stay there long enough to ride out the potholes, you get paid to live there.

With economic problems all over the world, it doesn't seem like higher rates are in the cards, adn possibly mortgage rates could go lower yet.


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## Berubeland (Sep 6, 2009)

Rusty O'Toole said:


> Excellent point. Let's talk about fundamentals for a while. I want all those who believe a nation wide real estate crash is in the offing to help me out here.
> 
> Do you believe people are going to stop living in houses and start sleeping in ditches and tents in the woods?
> 
> ...


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## none (Jan 15, 2013)

^ What a great post. Thanks for adding that !


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## fraser (May 15, 2010)

We rented a Calgary condo in late 2013. We had intended to buy but the numbers did not make sense. 

We know the numbers on this unit. In a perfect world, 100 percent occupancy in this unit since we rented, the landlord would realize 2.6 percent ROI. But this is before condo assessments. There was an assessment. It swallowed up three years of that return (to Nov 2016 assuming 100 percent occupancy and no further special assessments). No mortgage expense factored in to this return. 

I would say that the condo market is down conservatively by 10 percent. Costs of disposition would increase that to 13 percent, possibly more if the condo was vacant for a few months. We anticipate that the condo market will fall by another 5 percent this year.

We expect a rent decrease since rents are gong down. Or we will move to a larger unit in the same complex. A rental decrease will move the '100 percent occupancy' ROI number from 2.6 to 1.5 percent ROI (before any special condo assessments).

These are the hard numbers in our condo market. Can you blame us for not buying or not considering investing in a revenue property like this? Would you want to invest in a large, indivisible asset like this that can be a challenge to sell? 

Keep in mind that the numbers are based on 100 percent occupancy with NO condo rental management fees or unit specific mtce costs (painting, appliances etc). A slight decrease in occupancy rates or rent delinquency would quickly place this unit into negative ROI before capital appreciation/depreciation. 

What makes it worse for some is what I would call the 'Florida effect" Some people purchased condos in new builds for themselves. Then the salesperson presented fairly tale numbers and suggested they buy a second unit as an 'investment' . Fantastic deal with a supposed positive cash flow. We had friends who did just this. Fortunately they were astute enough to realize the mistake and acted accordingly. They dumped this rental unit early last year before the market really started to tank.

Not certain how reflective these numbers are of the Toronto or Vancouver numbers but this is the reality where we currently live. 

Given our economy I can only imagine how many people are backing away from pre build condo purchases sold two years ago that are coming on stream this year.


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## Just a Guy (Mar 27, 2012)

As I said in a different thread, my latest aquisition was a three bedroom condo. It was owned by a Toronto lawyer and his banker wife. They purchased it in 2007 for $250k, I bought it for $95k. They paid more ($155k) to get out of it than I did to get into it.

The really sad, or good part for me I suppose, is, in talking to the realtor, we found out that they have at least 4 more properties coming onto the market soon. Imagine walking away from $500+ in 8 years. 

At 95k, it will cash flow, even in the expected downturn...at $250k he was losing money from day one.


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## steve41 (Apr 18, 2009)

Contrast that with my situation..... detached 1950s vintage home in GVRD was assessed for 1,585,000 in 2012. Current assessment 2,655,000. A tale of two cities perhaps? _(for GVRD read West Vancouver)_


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## Just a Guy (Mar 27, 2012)

Assessed value and what the property should be worth are two different things. Hence the reason we talk of a real estate bubble. Are you so confident of the value that you'd get a 95% LTV mortgage on it and spend the money?

My purchase certainly isn't common these days, only rarely do they come up. That doesn't mean the place I bought should be worth $250k. With these interest rates, you may have even made cash flow at the original price, but it was certainly more gambling than investing.


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## Berubeland (Sep 6, 2009)

steve41 said:


> Contrast that with my situation..... detached 1950s vintage home in GVRD was assessed for 1,585,000 in 2012. Current assessment 2,655,000. A tale of two cities perhaps? _(for GVRD read West Vancouver)_


I'm not trying to be mean, but this is such an excellent example of why we are in a bubble. (I'm gonna make some assumptions here) Steve bought a house and maintained it, in effect adding very little value, yet in three years the price of his house has increased 60%. Why? What is supporting this? It certainly isn't the wage increases in Vancouver or the booming local economy. 

In effect Steve has made about $1,000,000 in paper equity just by owning a property. Steve thinks he is very smart because he has made all this money doing essentially nothing but securing himself a place to live. His neighbor is just as smart and feels the same way because a rising tide raises all boats. They get together and congratulate themselves about how brilliant they are and talk about the latest sale on the street or MLS listings. 

It's not surprising it warps peoples' minds and creates paper millionaires. Fact is the city just found a reason to increase your property taxes. 

We all pretty much need a place to live, and until you sell you don't have that million bucks. I have told people to sell money losing properties but they just won't because they are addicted to the gains they have "made" and want to keep the streak going. You didn't make it until you sold. End of story.


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## Just a Guy (Mar 27, 2012)

Let's also compare the situation to Calgary which, until the past 18 months, also saw huge yearly gains. I was talking to an accessor who has offices across the country he said million dollar homes are now down by 25% in the last 6 months and not selling. Two years ago, they were increasing at 25% a year... They are the worst place in Canada right now. 

Things can change quickly it seems.


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## steve41 (Apr 18, 2009)

BTW Using Steve and Smart in the same sentence is wrong.

I should mention... lot size 70X100, open ditches, no sidewalks, and difficulty conversing with your neighbours unless you speak Farsi or Mandarin. I should have sold in 2012 and invested the proceeds in the TSX.... no, wait a minute...


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## Pluto (Sep 12, 2013)

steve41 said:


> Contrast that with my situation..... detached 1950s vintage home in GVRD was assessed for 1,585,000 in 2012. Current assessment 2,655,000. A tale of two cities perhaps? _(for GVRD read West Vancouver)_


It could be a tale of location, location location. I recall a real estate agent drumming up business by claiming, buy land, they aren't making any more if it. That works in Vancouver due to its mountains, oceans, and other constraints. Doesn't work too well in the prairies where they just lop off some farm land and expand. 

Even so, the outer limits, or twilight zone, is ultimately constrained by fundamentals as a couple of people have mentioned. But I don't see a crash. Historically there have been very long consolation periods - 10 years+ with about a 20 -25% pullback in prices. Vancouver is not a one industry town, as Fort McMurray could be typified as. How far have prices crashed there? 15%? That's not really a crash despite the economic devastation. Vancouver's economy is far to diversified, and the area far too desirable to crash. Heck, in your area you can always sell to some overpaid UBC profs.


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## fraser (May 15, 2010)

We have lived in Calgary since 2000.

We have NEVER seen annual gains of 25 percent on homes under $800K. 10 percent was high, often lower, plus a downturn in 2008. 2012/13/14 they were anywhere from 5-8 percent.

One thing is for sure...some sellers in Calgary still think that we are in 2013/2014. Wait a few months....there will be a difference in attitudes within this market.


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## none (Jan 15, 2013)

Pluto said:


> Heck, in your area you can always sell to some overpaid UBC profs.


UBC profs make at beat close to 100K per year (although there are some exceptions). Some profs have actually left UBC b/c they couldn't afford a house in Van (which seems like a dumb reason to dump your job).


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## peterk (May 16, 2010)

fraser said:


> We expect a rent decrease since rents are gong down. Or we will move to a larger unit in the same complex. A rental decrease will move the '100 percent occupancy' ROI number from 2.6 to 1.5 percent ROI (before any special condo assessments).


Up in Fort Mac I'm paying $2200 for a 2+2 1000sqft brand new build apartment condo. Signed the lease almost a year ago, up next month. I'm expecting to pay $1800 going forward, $1900 tops or I walk. This place would have rented for $2500-2700 2 years ago before the oil collapse.

Lots of huge variation in rents and expectations and what is considered fair value these days. Many owners in denial that their investment condo was a poor decision and demanding way too much rent likes it's the good old days, many owners taking below market rent just to get it filled because they're scared of things getting worse, and many in between the two extremes. I hope my landlord will be reasonable next month. I'd rather not have to move...


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## Just a Guy (Mar 27, 2012)

The landlords may not have a choice...if they bought an "investment" at too high of a price in the first place. The rents they charge may be based on their costs. Everyone always assumes that landlords are rich, and got that way off the backs of poor renters.

Many "landlords" make poor choices on the belief that it's easy money. There is a difference between landlords who are "professional" and ones who are "amateurs". In reality, there are as many poor investors in real estate as there are in stocks and bonds... No one seems surprised at poor stock investors, with their silly decisions and mistakes, but assume real estate investors all know what they are doing.


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## Berubeland (Sep 6, 2009)

Just a Guy said:


> The landlords may not have a choice...if they bought an "investment" at too high of a price in the first place. The rents they charge may be based on their costs. Everyone always assumes that landlords are rich, and got that way off the backs of poor renters.
> 
> Many "landlords" make poor choices on the belief that it's easy money. There is a difference between landlords who are "professional" and ones who are "amateurs". In reality, there are as many poor investors in real estate as there are in stocks and bonds... No one seems surprised at poor stock investors, with their silly decisions and mistakes, but assume real estate investors all know what they are doing.


One interesting factoid about landlords is the almost constant refrain of how rich they are and the resentment people have towards them for being cheap. These days they are not making money. They are putting money in. Those real estate gains are on paper and they cannot access it for renovations etc. In many cases they pay for their renos and repairs and maintenance fees and paint jobs out of their day job money. If "you're paying off your landlord's mortgage" you'd be surprised how long it takes your landlord to actually attain any equity and then by the time they are paying down their mortgage at a decent clip, they need to pay taxes on their "income" which is the amount their mortgage is getting paid down. Long story short, landlords take years and years of hard work to get a decent amount of money into their property. 

Not a surprise, a lot of hard work goes into that passive income. 

My favourite investors are the ones who know what they are doing, and are not in denial about what is going on.


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## sags (May 15, 2010)

It isn't hard to understand that people get sucked into "free money" by purchasing a rental condo.

Slick agents, presenting sketchy realtor math and best possible scenarios............extolling the "exquisite skyline/harbor" views, without mentioned the condo high rise slated to be build a few feet away in a couple of years.

(Did anyone see that story about a Toronto couple who bought a place for the view and then a condo was built so close to them that the builders stood on their balcony to paint the other building?. They go out on their balcony and can literally touch the other building. Nice view...........if you like looking at concrete. They can see a small patch of sky if they look straight up though, so laying down on the balcony isn't so bad.)

People lose hundreds of millions in "don't pay taxes" schemes all the time. Easy money........ is the best fishing lure a realtor has in their tackle box.

I feel sorry for people who invest their future into a rental that they will lose their shirts on............but offshore investors............not so much.

Here is another story in Regina, Saskatchewan

http://leaderpost.com/news/local-news/resident-warns-of-too-close-for-comfort-condos


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## Hawkdog (Oct 26, 2012)

Just a Guy said:


> The housing crash has nothing to do with outside buyers (it's still a lower number than those owned by Canadians, despite everyone's paranoia). It all comes down to simple math.
> 
> The average Canadian earns just under $50k/year in 2015 according to stats Canada. The historical average mortgage rate is 8%. He average house price in Canada is $433k in 2015.
> 
> ...


This is a good analysis, I just wonder about the average house cost. How is that calculated? Is it detached, semi detached - does it include condo's? Recreational property? Vancouver's West side? 
If one wants to calculate what an "average" Canadian can afford one should use the price of a house an "average" Canadian lives in - the Canadian that makes 50K/year.
Do you think that Canadians making 50K a year are living in houses that are worth 400k? 
What would be the average home cost if you excluded Vancouver, Calgary and Toronto?
just stuff i wonder - the average home cost in my community is just over 300k.


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## Just a Guy (Mar 27, 2012)

Sorry, didn't bother to analyze the details, I just pulled the numbers from stats Canada. Yes there are places that can skew he averages (Vancouver, Toronto, etc.) but there are also salaries which can skew the averages (doctors, lawyers, etc.). I'd bet the ratio of higher income earners, would probably be similar to the ratio of houses in Vancouver/Toronto to houses in Canada. They are called "averages" for a reason...most people don't know what the mean is, which would be a better number, but I doubt, with such large numbers (millions of houses and working people) that the numbers are too far out. 

As for people making $50k owning $400k houses, I've got friends who fit that, so yes.


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## Causalien (Apr 4, 2009)

Berubeland said:


> One interesting factoid about landlords is the almost constant refrain of how rich they are and the resentment people have towards them for being cheap. These days they are not making money. They are putting money in. Those real estate gains are on paper and they cannot access it for renovations etc. In many cases they pay for their renos and repairs and maintenance fees and paint jobs out of their day job money. If "you're paying off your landlord's mortgage" you'd be surprised how long it takes your landlord to actually attain any equity and then by the time they are paying down their mortgage at a decent clip, they need to pay taxes on their "income" which is the amount their mortgage is getting paid down. Long story short, landlords take years and years of hard work to get a decent amount of money into their property.
> 
> Not a surprise, a lot of hard work goes into that passive income.
> 
> My favourite investors are the ones who know what they are doing, and are not in denial about what is going on.


Wow, Berube hit the nail in my heart. Being a landlord is gut wrenching and after 7 years of ownership, I have to say that in total, I suffered a net loss. I'd have suffered more monetary loss if I left the house empty, but the amount of time and heartache that I wasted is worth all the monetary losses and more. The only solution is to double the rent, but that means no tenant will take it as it will be double the market rate because people who work in Vancouver are too poor to pay even the current rent. 

The misconceptions about landlords are real. I have friends who look at everything I say and do as away of showing off. Until I sold and net out all the costs and profits, those equities are not available. And any day, we could be going down for a housing crisis.


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## sags (May 15, 2010)

Our landlord is a private family business that great grandpa started in the 1960s. His children carried on from a "huge" starting point, and built the business to the corporation it is today.

Great grandpa and grandpa did most of the hard work. They bought the land and developed the properties. They set up their own maintenance staffs in the cities they operate in. They set up the office administration.

The grandkids are now in a position to sit back and watch the money flow in, without a worry about it. They don't get a phone call from a tenant in the middle of the night. One of their maintenance people do.

They don't collect rent arrears,advertise, show empty units, screen tenants, or turf tenants out. They have lots of people who get paid do all that for them.

The best part of being a landlord comes at the end, when everything is organized, working well and very profitable. They are basically a private REIT now, with full control over everything and collecting all the dividends.

I get the feeling that is a situation that Just A Guy is aiming for down the road, not ownership of a unit or two.........with all the headaches that it entails.


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## Just a Guy (Mar 27, 2012)

I look at it more like playing Monopoly with real houses. My first goal was to generate passive income, my long term goal is to establish multigenerational income.


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## Causalien (Apr 4, 2009)

sags said:


> Our landlord is a private family business that great grandpa started in the 1960s. His children carried on from a "huge" starting point, and built the business to the corporation it is today.
> 
> Great grandpa and grandpa did most of the hard work. They bought the land and developed the properties. They set up their own maintenance staffs in the cities they operate in. They set up the office administration.
> 
> ...


Yeah, my attitude changed. Scerw leaving it to my children. I want to make it big in my life.


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