The Canadian Economy.

Ain't that the truth

 

Walter.........

The long run is about to end. Even a marathoner's lungs can only pump so much air and currently said runner is on life support. In fact, several noted long distance runners have dropped dead afterwards............

 

Built our house in 2001, it is up 220%
Bought Gold in 2001, it is up 350%

What you need to factor in is the Gov put, real estate prices will always be supported by the Government to create and maintain inflation. Hard assets will perform better than cash going forward. Sure there are periods of deleveraging, but those are just buying opportunities. The US is in deep crap now and Canada will fair better. Inflation is on its way, buckle up. JMHO

 

KDS, can you explain the huge spike in arrears thruought Canada at the end of the chart?

The number has tripled in 6 months in 2009.....According to the graph it looks like a major incline, but I haven't heard too many banks/brokers complaining about defaults these days.

Is this an ongoing trend into September/October too? Are the 2009 stats much more worse than the 1995 stats?

 

Here's my take from the low arrears stats, until now...........

The market basically stopped going up in late 2007. People got left holding the bag. Sales volume fell off and prices halted their advance. Three events occured that caused this, the speculators/flippers left the market enmass, affordability went out of whack, and consumer confidence became affected when people finally came out of the ether.

In the 5 years preceeding this, in other words from 2002 - 2007, you could do no wrong as a speculator because we were in an irrational market bubble fuled by cheap money, lose credit and media manipulation on TV and in the newspapers. Anyone could borrow too much money without qualification, for too much house, and they never had to worry about really being able to afford it because there was always some other "greater fool" who'd pay more for it. Hence little to no real delinquency problem as everyone made money, paid their mortgages or sold the house inside of 30 days if they ran into trouble. A classic asset bubble......and you can see how arrears went down over this period.

Now, in RE, bubbles usually deflate slowly over time. Today might be different because you cannot sell your house for more than you paid (if you bought it in the last 2-3 years) in most markets, and most certainly not here in Calgary. Therefore you have to.....

1-lower your price due to slower sales, more listings, cheaper places for rent, and cheaper new construction homes for sale
2-accept a big discount off your list price to sell it
3-pay 7/3% to a realtor if you are on MLS

It is common to see 6 figure price cuts.......people get behind, companies are cutting pay big time or cutting hours, overtime does not exist, the oil patch is dead, people are walking away, getting laid off, EI runs out, tenants leave or want lower rent, you can't find tenants at the price you need, etc, etc,........therefore you fall behind because you also binged out on a new car or two or three, you're maxed out on credit cards, clothes, trips, furniture, etc, etc......and you do not qualify for any more credit. Something has to give somewhere, and it is starting too show up in Alberta big time. This is what happens when you burn the wick at both ends and governments do not control monetary policy.

My friends who still work at MB are making 50-60% less than they did in each of the last 5 years.......try and live on that when you just bought a $600K house a year ago with only 5% down, thinking you were set for life, even though you paid $200K less than they guy did 2 years before......it doesn't matter and I know 2 guys who did. They're f-ed.

Banks will always lie to you, real estate agents will always lie to you, politicians will always lie to you and the media will always lie to you, because they all pay the media. You gotta paint the picture yourself.

There are hundreds of thousand of boomers retiring in the next 10-20 years who are all going to want out of their houses at $500-750K each......and is who is going to buy them with 10%+ interest rates and $12+ an hour jobs, which is all we will have due to the government debt we are piling on today trying to keep this bubble alive ?

 

Amen brother. Even if you don't ever pay the place off. In 25 years it will have quadrupled. Inflation will always be around so as long as you are in the game you win. Besides, you have to live somewhere.

If a person prefers to rent, then fine I respect that, but owning is better in the long run.

 

You guys all forget one thing and it is not your fault becasuse you don't know any better (I'll explain later).....and that is not meant as an insult either.

In order for your theory to work houses will "also" have to continure rising in value and therefore quadruple in the next 25 years, and incomes will have to increase incrementally to support that quadrupling of RE prices in order for people to qualify for loans.

I doubt I'd be making $500K selling cars in 25 years and 1,100 square foot cardboard **** shacks will be $1.6MM here in Calgary.

Anyone here seriousy think that will happen ? Speak up please and prove me wrong.......

ROTFLMAO !!!!

What you don't know is that consumer credit has driven this whole thing. And the consumer credit juggernaut has hit the wall big time.

Consumer credit per say did not exist until the 60's except for a few small finance companies doing lending for furniture and cars. It started to take off in the late 70's. In the 80's it was booming and up to now it hadn't stopped growing. What do you think created the longest running economic cycle we have ever seen ? It wasn't productivity or economic growth.....it was consumer credit. The stapling of little pieces of paper to bigger pieces of paper. Now the stapler is broken.....and guess what, they are only made in China.

And the consumer is no longer credit worthy at today's levels.

 

The RE market is a bit decieving now because of the 2% interest rates we are enjoying......when they hit 8% again, we will see how fast the RE ginds to a halt.

 

I agree with your deleveraging hypothesis. However, in 1973 my father bought an average house in the burbs for $21,000, 25 years later (1998) that house was $400,000 and today it is $800,000. Most of that price rise was based on inflation or currency devaluation. The entire ponzi scheme is created by the central banks mandate to create inflation. A stealth tax on the citizenry. There will be geographic disparity and periods of deleveraging but the gov will do everything to ensure monetary inflation and consequently debt reduction. Real estate prices may not maintain the rapid rate but will be a good inflation hedge and you need a place to live. Certainly, there are periods were renting would be better, but you get nailed on transaction costs going back and forth. Real estate here has bounced back after about a 12-15% drop, we are virtually back to our highs. Interest will be artificially low for a long time, if Canada raised rates the C$ would go through the roof and kill the economy.

In the end, real estate has local factors.

 

And it was created and fueled by the rise of consumer credit. But now we are in deflation, despite every central banks best efforts to stop it. There is no way out because consumers cannot buy anymore. There is no RE bull or realtor that can effectively dispute the sheer numbers with anything but emotion. Facts, logic and reason trump the day because of where we are due to our own actions. All the arguments for RE are old and no longer apply in the new world.

Before this consumer credit and today's home mortgages existed, houses were between $5-10K for decades.

Problem today is also that the last little "bubblette" that was created was solely due to a massive, and I mean truly massive push by the REIC (Real Estate Industrial Complex) back in March of this year to sucker in all the first time home buyers sitting on the sidelines. This was done for a reason, as they are the most uneducated and naive of all consumers, motivated by fear and a need to belong to society. They are usually between 20 and 35 years of age, ergo, they were not around last time (1982-1985 crash) and therefore they have never lived thru a downward negative economic cycle, so they don't know what it is like and how to relate to one, let alone see it coming. The perfect target market. Naive little Johnny just graduated and got a a job, as well as a girlfriend, and is now getting laid regularly, so he thinks he is a man of the world. GF's nesting instincts along with an unscrupulous realtor (there is no such thing as the opposite) push them into 35-40 years of $500K worth of debt at record low interest rates with little or no equity, all based on false promises.

Now rates cannot stay low forever, for if they do, we end up like Japan, with decades of deflation. But the problem is, the US is sooooo screwed that when they raise their rates, or face Weimar Republic style inflation, Canadian rates also have to rise, so little Johnny sitting on 35 years of $500K debt for a cardboard **** shack soon finds out that he cannot pay his mortgage anymore and rising rates have killed Canadian business competitivness, as well as RE prices, so he gets laid off, GF finds out he is not a man after all, but a sheep, leaves him, he gets foreclosed on and goes BK.....

My wife is from Brasil. Mortgages exist there in very small numbers (maybe 5% of all housing sales) so everyone saves money and pays cash. The result is a stable and predictable housing market. We have property there. 3rd world people have been thru 10X as much economic distress as we have, so they know to deal with the crap we are soon to be going thru. The first time buyer here that kept the bubblette afloat is clueless......like clubbing seals in a barrel.

 

You can't argue with success.

I get a kick out of this whole discussion because how else are rental property owners going to pay the mortgages on their rental properties if everybody believed in buying the place they live in.

For those who believe in renting keep on renting. No one is saying you can't do that. For those who believe in real estate keep on buying. You have to take risks somewhere why not real estate.

In 1975 the city of New York was on the verge of bankruptcy and some really smart people with big balls went and bought buildings nobody wanted. These people took risks and they are better off for it.

I wish I had a dollar everytime someone tells me this story, "I could have bought that place for $50,000 in 1983 now its worth blahblahblah."

Timing the real estate market is a fools game. Buy and hold. When the your place goes up in value borrow and buy another property. In 25 years you'll have many monthly paycheques coming in from those who believe in renting.

 

See, you're going emotional with your argument already. Look out, because here comes facts, logic and reason again.

Will those rent cheques cover your inflated and remortgaged property costs ? Where I live rents are going down.......15% in the last 18 months........in NYC rents are down a similar amount..........all over the US and Canada, rents are going down. Check out what is happening in the commercial property sector.

There is risk everywhere and in every investment....the point of this discussion, IMHO, is to debunk all of the myths purported to be facts by those with a vested interest in selling you a piece of property.

 

+10

Always a solid investment, alot less volatile than the stock market.

 

Do you guys think that the stuff happening in the markets including housing are natural events. They are all being manipulated by the Greedy pricks at the top. They use the media to scare people into thinking that we are in bad times, infact one year ago we were told that we were well into the beginnings of the worst recession since the depression. Many small investors sold off whatever thinking it would get really bad. But low an behold its now over. Who do you think was buying up everything that was sold at bargain basement prices? Its all one big pyramid scheme my friends. The guy who gets ahead in this life is the guy who works hard and ignores the socalled "shortcuts to the top". The companies like Goldman Sacks love the lazy guy looking to make a quick buck. If nobody would play their game, they would be screwed. Here is a little video that will help to explain how the guys at the top are steeling your money while you play their game.

http://www.milkandcookies.com/link/149052/detail/

 

KDS,

I agree with your premises, but not your conclusion, at least not as a general application to all regions as there are regional RE factors to consider. You are seeing the situation as it is now, skate to where the puck is going. The gov and central banks will do everything to support house prices by creating inflation going forward. The debt gets reduced by inflation as the asset rises. In Weimar Germany, real estate did well, debts were wiped out, stocks dropped then recovered, those in cash got smoked. Whenever you feel a wiff of deleveraging, the reaction is more inflation. Game theory, what will they do... We will be going through a period of massive inflation or an outside chance of hyperinflation in the next few years, but it will be worse for the US. I would not be surprised to see a 1.20 CDN$. Interest rates will be held down below the inflation rate for a long time. Japan was screwed as they tried to create inflation the carry trade took their inflation out of the country, actually good for an exporter.

I don't know when the best time is to buy, but when fiat currencies have no backing as in gold, there is no restraint on governments and central banks to create inflation. Notice that after Nixon took the US off of the gold standard, inflation has accelerated asset prices. It papers over all the debt. Houses don't change in value, it is the fiat currency that does.

 

Great video Frank.....!!

Just insert Bank of Canada, CMHC and taxpayer "where applicable" and you'll see the mess we "the taxpayer" are going to be in up here when things go sideways......which they will. We bailed out CMHC in the 80's.........this time it is much, much, worse due to the extreme government meddling in the economy and total lack of responsible oversight of our own "made in Canada" housing bubble.

http://www.cmhc-schl.gc.ca/en/corp/faq/faq_001.cfm#1

 

With the Canadian dollar climbing as the USD drops what would some of you say to exchanging some currency? Would it be worth it and as previously the USD comes out on top. They say the US debt is a threat though, im debating it soon.

 

Something must be wrong...either the end of the world is coming...or the moons are aligned.

I actually agree with you 100% for the first time on something.

 

Thomas, this time around, i see little hope for the US dollar gaining ground. I plan to buy some, but the day of a CDN .77cent Vs US $1 is over for a few years...the US is toast, and the bigger problem is, they are to stupid to know it to change any of it...Keep outsourcing jobs to India, Jamica, and the Phillipines you morons.

 

It may be the time for short term for those who have the funds. Exchange to USD, Import Vehicle and sell here?

 

Great video, renters should remain renters.

 

Average compensation for Goldman employees including everyone - secretaries, mail-room, janitors, up to the executives .....


... over $750,000 each if divided equally.

 

How long does Joe Blow the mechanic have to save (while paying rent somewhere) before he can move into his own home in Brasil?

 

Big Red, they are not too stupid, they are too arrogant. No where outside US can do anything good. You would think the rest of the world can't design/build/implement anything! Well guess what, they can and have been for some time.

On our recent 66 day trip through South Asia, it was amazing how many of the Americans were upset when some local merchant in Thailand or China wouldn't accept US$. Everyone else had figured out that having local currency would be the smart thing to do.

Gerrit