Kelli at greaterfool.ca 21 Apr 2011 12:53am – “We could buy a 2 million dollar home with no debt. I struggle with this every day. Garth [Turner] helps me rationalize renting. My brain is fighting my heart and holding this type of conflict is really hard on a person.”
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Latest Anecdotes:
- “The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”
- “Let’s remember how we got here” – Looser and Looser CMHC Limits
- Don’t Worry, I’m Sure Somebody Will Sort This All Out – “Policymakers now know better and will be a lot more proactive in preventing a collapse.”
- “Things have changed, we are not doing that type of mortgage. We are not interested at all.”
- “We are noticing our target type of housing in price decline, albeit slow, as our money increases in value, slowly as well but outpacing housing.”
- Renter Buys In West Van – “For a few hundred more per month, you could own the place. Which is what I will be doing as my offer for a place down the street has been accepted. There is some value in staying in one place.”
- A Bed in the Bathroom, Why Not? [Let Us Count The Reasons...]
- “My husband and kids are pretty happy in our rental house within cycling distance of work that we could never have afforded otherwise. We’re doin’ pretty dang well, thank you, for median income earners in this expensive city.”
- “I Wish Them Bad Luck.” – Jim Flaherty, on those who wish to profit from Canadian RE price drops
- “We asked why he doesn’t just rent the whole house. He said he can’t, it wouldn’t cover his mortgage – he’ll get more to rent it out as two suites. These new landlords are hilarious, thinking that rent will cover their mortgage!”
- “My neighbours, in their late 60s, just put their house on the market. They had said they would die in that house, but now they are worried that with the housing market going south they may be losing a lot of equity and they better sell now before it gets worse.”
- Chat Thread
- Taking A Break
- “My best guess: this property is now an ‘investment hold’ and will be built ‘when prices recover’. Good luck on that!”
- Man Loses $745,000 Vancouver Condo Deposit
- Graphic – Degrees of Housing Overvaluation in Canada
- The Rare Individual With A Negative Ownership Premium
- Advice Regarding Renting In Vancouver, Please – “Unfortunately, the Vancouver rental stock is absolutely atrocious. It just seems like every landlord is looking for someone to pay 100% of their mortgage on a crappy place through rental income.”
- “I just visited Manhattan for a week, and happened to snap some real estate ads on both the Upper West and Upper East sides of the island. Compare to Vancouver. It simply doesn’t compute.”
- Ben Rabidoux In Vancouver Next Week
- “The mortgage company told me they were calling in my 40-year, 0-down mortgage. I have paid nearly sixty thousand dollars towards it, but, nearly five years in, I have yet to touch the principal.”
- ‘Vancouver City Hall: Housing Report Card 2012′; Plus Revised Version
- “My folks find themselves at 65 still owing half the value of their home and recreation property to the bank. After almost 30 years of ownership in the BPOE and a number of boom markets, they have very little to show for it.”
- “Rent for $2,200 a month or buy and have a mortgage of $4,310 per month. Why would anyone buy?”
- “They were talking about two couples they knew who had recently bought a lot and planned to each build a house on it and live as neighbours.”
- Greater Vancouver Home Builders’ Association Annual First-Time Buyer Seminar Attendance Plummets
- Mom and Pop Get It Wrong In All Markets, Time And Again
- The average British Columbian homeowner is not going to pay off their mortgage by the time they retire.
- “He’s sold all his properties except his current one, which is now for sale. He explained that the market’s currently in crash mode, worst that he’s ever seen.”
- “One of my old high school buddies finally got her mother to sell the family home in Kitsilano – sold for over $1M, monies realized after debt paid off $185K.”
- “I know someone who just declared bankruptcy because her condo was assessed at $150k and she bought it presale north of $250k in 2005 or 2006.”
- Sturdy, With Views – “Calling Froogle Scott!… Is Dr. Scott ‘In The House’?” [Not In This One, Certainly]
- “She said the market was dead in Victoria and that it would remain so for a very long time. I asked how she knew. Her answer was fascinating and should scare the pants off the real estate crowd.”
- Kits Notes – “I’m pretty sure that this is the first 3+ bedroom property of any type that I’ve seen in the 5 years I’ve lived here that is priced below $700K.”
- “A beautiful Belfast home, in the equivalent of 1st Shaughnessy, bought at their RE peak in 2007 for £3.5 million, has now sold for £800K, almost 80%-off. The market didn’t suffer any significant economic shocks. Rates & unemployment didn’t skyrocket. They didn’t build more land. Sentiment just changed and the prices fell and fell.”
- “Two family members of hers are trapped, underwater, in condos on the East Side.”
- “Interprovincial migration is not saying good things about BC’s economy.”
- Vancouver RE: Not As Expensive Provided You Don’t Think – “It’s clear that our perception of affordability has been coloured by living on a continent where housing is unusually inexpensive.”
- More Undisclosed RE Industry Insiders Publicized As Clients – “In 1995, Allan and Karin Hoegg were mortgage-free. But no more. Today their Vancouver home is a valuable source of income as they plan for full retirement.”
- Rumor that some OV units will be reduced by 20%.
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Garth Turner owns his own house – and probably more. Why does he advocate for folks to sell their principal residence and rent? Isn’t he doing the opposite of practicing what he preaches? That dude is the biggest hypocrit in Canada
“holding this type of conflict is really hard on a person”
It really is tragic when it’s put like that, isn’t it? Hopefully my supernatural powers will be of use here — I will channel the thoughts of Mark Carney:
“Sorry, savers!”
Maybe that just made it worse…
It is not about what Garth thinks.
It is about fundamentals. You do the math yourself??
I do not think that it is in you. There are are two kinds of people in this world, the smart ones who lead and anticipate; and the others who are not so smart like yourself. It takes both kinds to make the world.
I am not dissing you, but this is how it has been and will be forever
The people Garth Turner advises to sell are those with looming retirement or massive debt who are sitting on valuable RE and have no other savings.
Actually, it is not really complicated..
It’s about selling high and buying low.
RE in Canada has become a nationalized Ponzi scheme. More so in Vancouver, where the RE is the only economic driver
Garth Turner does own his own house, yes, but he can afford to own it.
He advocates use of a rule of thumb that suggests one should have no more than (90 minus age)% of your net-worth in RE.
So if you’re 40, you shouldn’t have more than 50% of your net-worth in RE.
How many Vancouverites would be sellers if they used that guideline? (a lot), How many prospective buyers would have to step away? (almost all).
[This is another way of saying that, if people only committed a sane percentage of their net-worth to RE, the Vancouver market will crash.]
We have always suggested that those who can afford to buy such that a large drop in RE prices (say 50%) would NOT destroy their financial future, should go ahead and buy, even if they anticipate such a drop (for convenience; for ownership benefits; etc).
The problem is that the vast, vast majority of Vancouver owners have most of their networth in RE; many over 100%.
So, in this respect, Garth Turner is NOT being a hypocrite by owning real estate at the same time as suggesting that others consider selling.
When the RE market implodes, Garth’s net-worth will drop 10% or 15%… he’ll be fine. He’s warning those who stand to lose 50% or 100% or more.
“He advocates use of a rule of thumb that suggests one should have no more than (90 minus age)% of your net-worth in RE”
That’s a wonderful rule if you’re either rich or a baby boomer who’s been riding a real estate wave for 20 years. What about the young people who are just learning to surf? Garth is simply out of touch with anyone who is not in his elite class.
And who made up this calculation anyway? i.e. if your 30 you can only have 60% of your wealth in real estate? It should be closer to 100% at such a young age. The only one who likely fits nicely into this magical formula is the guy that dreamt it up
Sure, we can debate the exact parameters of such a rule, but you get the idea… no one should be overly dependent on one asset class for their entire financial future, least of all after a ten year run up in prices.
The fact that this rule seems so out of whack currently reflects on housing prices, not on the rule itself.
I dont like insulting people, but Garth is really an idiot. Anyone listing to his daily garbage is wasting his time. It is hard to find anyone in the blogsphere less consistent than Garth.
He is just trying to generate traffic and sell more books. At one point he was trying to sell generators and survival equipment on his site. If he was given a decent job by a real estate company , Garth will be pumping RE as a good investment beyond belief. It just happens that fear is better for his book sales at this time.
I don’t know if he’s an idiot, he is a good writer, but he is definitely selling something and he is only looking out for number one.
It depends how you define good writer. He is no literary genius, but he does has a knack for a simple, entertaining, almost “shock-jock” writing style that gives his books broad appeal to a general audience.
His “Daily Garbage” is almost always just a suggestion to be diversified… is that really such an extreme viewpoint?
Based on almost every statistic (besides the “affordability index”, since that is tied to the ultra-low mortgage rates that are out there), the current Canadian Housing Market is severely over-priced.
A warning to Canadians that it might be risky to take on a giant mortgage on an expensive house when the market is about to turn doesn’t seem like “garbage” to me.
VREAA – so what else are you supposed to have your wealth in VREAA? Gold? At 1500/ounce. Or stocks which will melt with the first sign of recession? No thanks my friend – I’ll trade you my gold and stocks for your home anyday, anytime. In fact, when I retire I want darn near 100% of my wealth in real estate (ps, I have a very good pension). I’ll pass two detached homes off to my kids and liquidate the rest or downsize as I please. Garth is an ass – real estate is the only thing worth holding
You don’t own any gold or stocks, so cut the bullshit.
It’s funny that you think that gold is overpriced at $1500, but Vancouver real estate priced is just right, despite the insane and unprecedented run-up in the past decade. Maybe you have a consistency issue too? Or you just don’t know what you are talking about.
Please don’t confuse my support of the principle of the above age/networth/RE ‘rule’ for blanket support for all Garth Turner argues… Let’s stick to the specific issue at hand: IMO Garth is not a hypocrite for owning RE and advising SOME others to sell. He’s open about this position and gives reasons for it. I’m not commenting on any of his other positions or advice.
Now, with regard to alternative positions to RE:
IMHO: At present simple cash is a WAY better position than Vancouver RE. Stocks and precious metals are also CURRENTLY more risky than cash, IMO.
This will all change: I’d anticipate buying opportunities in stocks and PMs within 18 to 24 months, and buying opportunities in Vancouver RE before the end of the decade.
So, what my position is at retirement I can’t yet be sure. In principle I will be overweight on that which is cheap and underweight on that which is expensive. If I was retiring NOW, I’d be very underweight RE.
[Be warned that I've been wrong before and fully anticipate to be wrong, on some things, again in future. That's the nature of the 'game' and the nature of prognosticating.]
Rusty -> Note that if you have ‘a very good pension’, your net-worth is likely best calculated at retirement with the addition of ['sum of cash I'd need to receive income equivalent to my pension at low risk at current interest rates']. So, your net-worth calc is different when compared with a self-employed individual facing retirement. If such a person went into retirement, now, with ’100% in real estate’, they’d run the risk of economic hardship in future.
we’re about to enter a period of high inflation. You hold your cash, I’ll hold my real estate
Yeah indeed. http://i.imgur.com/PBPz4.jpg
If we are entering a period of high inflation then we are entering a period of high rates. It is quite simple ; high rates equal higher mortgage payments, which will cause a decline in real estate values. How much is anyone ones guess. This increase in home values has a great deal to do with cheap money and access to it.
you assume that high rates are likely, or possible. Canadian rates will not move to far from US rates, and last I checked inflation was not an issue south of the border. But good luck with your theory
Okay, let’s keep in touch in coming months/years and see how this all plays out.
Rates are going up… it just depends upon where you are!
“we’re about to enter a period of high inflation. You hold your cash, I’ll hold my real estate”
“last I checked inflation was not an issue ”
you got credibility issues dude.
When rates are at rock bottom, they only have one direction to go.
A lot of people don’t realize “you can’t have your cake and eat it too.” So, if there is a real recovery, rates will go up, a lot. In the late 80′s they went from 12% to 18% very quickly. Credit card rates went to 30%. This time will be no different. When rates rise, they will rise very quickly and your 3% mortgage will be 9%. We will return to a real estate market that grows very, very slowly, only after the real estate market drops anywhere from 20% to 40%. This has nothing to do with Garth Turner (he’s not a god you know) and everything to do with cycles.
If there is no recovery (more likely, because we are mired in debt), rates will still rise. After all, are we going to become a country of multi-millionaires in order to continue this bubble? With this scenario, it’s more likely rates will rise slowly. They will still reach 9% or 10%, but it may take five years to get there instead of 2 or 3.
Canayjun
“In the late 80′s they went from 12% to 18% very quickly. Credit card rates went to 30%”
Not sure where you get your stats from, but you’re wrong about the above.
Also, here is a graph of BOC interest rates; please tell me what “cycle” you’re talking about?
http://edmontonhousingbust.com/category/canada/page/3/
Interest rates may go up but they will probably never be close to 10% in my lifetime.
I’m not sure, Rusty, I understand the nature of your complaint against Canayjun. There was a spike in the 80s: I can find points on the graph you’ve provided that represent going from 12-18%, and although those don’t represent the ceiling or floor the rise, however, was quick. The 80s spike is the greatest, but interest rates are rising and falling with some pretty obvious regularity.
two complaints 1) the 18% rate was early 80s not late 80s 2) that there is some kind of “trend” in real estate that needs to be followed. That is almost like saying Vancouver is the same city it was 70s, 80s, 90;s and today. This is an incredibly naive statement and ignores every variable factor like immigration, land use, Olympic or Expo effect, interprovincial migration, etc. Unfortunately, these uneducated posts are more the norm on these “bear porn” sites
I was 34 years old when the rates went from 12% to 18% during 1988 to 1990. I lived it. Anyone who was in their thirties during that period KNOWS the rates went up a lot very quickly. People were absolutely devastated to be paying 30% on their credit cards. IT IS A FACT. I lived it. And anyone with common sense knows things work in cycles, everything from seasons to economic cycles. Otherwise there’s no real point in teaching economics, is there? Even fashion works in cycles.
http://www.abs.gov.au/ausstats/abs@.nsf/2f762f95845417aeca25706c00834efa/dbd46552aa41b8deca2570ec00787a56!OpenDocument
Second graph down. This is an Australian document. I’m not interested in trying to find a Canadian graph, since interest rates around the world tend to move up and down together.
I find he doesn’t really understand the basic points of investing… for example he conflates “total return”, “capital gains” with “yield”… About a month ago, he was boasting about how his preferred share ETFs were “yielding” 8% when he actually meant the total return was 8%…
He confused the heck out of me and a lot of other poster… then he has the temerity of accusing those calling him out on it as being simpletons.
Interest rates can stay low, longer than you think (Japan). Just because you saw high interest rates once (80′s) does not mean we are destined to return there.
From the Ontario Ministry of Finance:
“Rest of Canada – Long-term real growth to average 2.3 per cent in the rest of Canada, compared to 2.4 per cent historically.
Canadian Dollar – Canadian dollar to remain in the 90 cents US to parity band through 2030.
Inflation – Inflation to remain near two per cent over the long term, consistent with the Bank of Canada’s target range.
Interest Rates – Nominal interest rates rise from recent lows, but remain below the historical average.”
http://www.fin.gov.on.ca/en/economy/ltr/2010/ch2.html
If you’re going to bring up Japan, you better know what the fuck you’re talking about because we are nowhere near what Japan has had to deal with in the last 20 years.
Japan is an island nation in the Pacific with an aging population of savers that (until recently?) exports more than they import. Yes, I am aware of that simple fact… matt.
When you are finished cursing anonymous posters on the internet you can explain to us the wage inflation you see on the horizon? Had a pay raise recently?
my mind is blown. blammo, do us all a favour and never post again.
I am short interest rate increases (variable mortgage) so my money is where my mouth is.
Not sure what your position is… matt but I think you need to deal with your own psychology before you start doling out advice. It is hard to be a bear and make money, not just in RE but in any line of work.
Good luck with that.
How’s that 1990-era Japanese Real Estate working out for ya? Tell me – did those low interest rates save it?
Oh, wait, the interest rates were low because the economy sucked and no one could afford a house anymore!
What are the 10 year rates at RBC right now? 5.65%?
Grab it and arbitrage the money as apparently you are much smarter than the banks and should be able to make a mint on the mis-price.
“I was 34 years old when the rates went from 12% to 18% during 1988 to 1990″
Canayjun,
I guess it was no use posting the chart of interest rates for you. See my above post. Interest rates were max 15% in the period you mention. The memory goes first my friend – therefore it’s always good to go by the nuts and bolts facts. And they were only at 15% for a couple of months.
I still have a hard time understanding your beef. Prime went to 12 and change in ’88, dipped to 11%, and then didn’t see 11% again until after 1990. Canayjun might be remembering offered rates on other loans than 5 year fixed.
Regardless, the data show that there is regular up & down-cycles.
“We could buy a 2 million dollar home with no debt. ”
Interesting how many people on these boards seem quite well-to-do, or at least purport to be.
ah yes, anonymous wealth, so abundant
Ok rusty, I’ll take gold and silver. You can hold your real estate. Not that I’m negative real estate but I’m much more bullish on returns with gold and silver over next months to year(s). So let’s see what % wins. Today gold at 1500.00 silver 42.00. You take avg Vancouver home price?
My mistake…. silver 47.00.
in 8 years my investment in my property is up 10 fold. Fortunately for me I don’t have to decide between investing in a home or something less than utile
Good for you. 5% down???
@ Rusty
Huh, thanks for correcting my years for me. So…from 1980 to 1981 the prime rate in Canada went from 12% to 22%, according to the following link:
http://www.canequity.com/rates/prime_rate.stm
So…up 10% in one year (not 3-4%). And if you look at the historical chart for real estate prices in Vancouver, there was a housing bubble from about 1978/79 to 1980/81, with about a 35% drop in house prices.
http://www.howtogetridofyourmortgage.com/articles/canadian-real-estate-andex-chart/
Much, much worse than what occurred in 1989/1990. Again, thanks for clarifying. Only time will time how much interest rates will go up in the next few years.
@Canayjun
“In the late 80′s they went from 12% to 18% very quickly”
now you’ve changed your statement to early 80′s. As your chart shows, prime rate was maximum 14.8% in the late 80′s.
The 15 year avg prime rate is 4.99% – don’t bet your life savings on a prime rate more than this
@ Rusty
No, actually I was just acknowledging that you were right. Not sure exactly how you manage to argue with someone who is agreeing with you.
take no offense Canayjun – I argue with myself all the time too lol
@ Rusty
= ) lol
listen to Garth and his followers and dont buy. by the way, please buy a Garth’s book on your way out.
a person with $2mil came to a blog for RE advise. it made you wonder!