30 responses so far ↓

• 

  Jimmy // November 16, 2009 at 7:27 pm

  The Canadian market is showing froth – I completely agree. Calgary is downright modest by comparison to many cities. It’s obvious now we won’t see a turn until interest rates go up. Who knows what the peak will be?

  Off topic but Mike you should check Garth’s site today. He’s basically played high school internet bully on a naive Calgary realtor, posting her picture and calling her names for making some mistakes. It’s just weird and creepy. I would post a link but I think that just plays into his game.

  Go figure that Canada’s real estate market gets frothy and angry Garth gets into a lather about some sexy realtor. I wonder if she’ll sue…

  So some advice for you and Bob and the other realtors: don’t put a sexy picture of yourself on the internet. Or you could fall victim to a Garth smear campaign…

  -
  Mike Fotiou says: Don’t worry, I think you’d be hard pressed to find any picture of me online None of those on google images are me, either

• 

  titicaca // November 16, 2009 at 11:36 pm

  C’mon Jimmy,
  Grath was brilliant and entertaining.

  http://www.greaterfool.ca/2009/11/15/fear-and-greed-nikki/

  A must read with so many discussion points; (1) sex sells, (2) clueless real-estate agents, (3) blaming subordinates at work, (4) blog-eat-blog, (5) over hyped real-state and more…

• 

  Gulsen // November 17, 2009 at 12:37 pm

  Regarding the Nikki blog, predicting the RE market and how you advise buyers/sellers; what is a RE agent to do? Can you be blamed for offering a forecast that doesn’t pan out? How do you handle a situation where your client wants to make a move that you think is bad but will make you commissions…?

  -
  Mike Fotiou says: I thought we would see a lot more inventory this past spring/summer. I was wrong. As long as forecasts are honest opinions and they don’t have a track record of being eternally optimistic (like some economists & real estate agents) or forever pessimistic, I would let it slide if they were wrong (read: please accept my apology )

  What type of situation are you referring to in your second question? As a buyer agent, it’s my job to help clients find the right house – not just a house. If I don’t like something about a property, I tell them. I believe it builds up their trust in me going forward and that’s very important to me as I would like to work with them on subsequent transactions and/or be referred to their friends and family.

• 

  CM // November 17, 2009 at 7:14 pm

  http://cba.ca/index.php?option=com_content&view=publication&id=69&Itemid=56&lang=en

  ^^^ new arrears data from CBA posted today. Up to 0.67% for Alberta (Sep 2009)

  No change nationally.

  -
  Mike Fotiou says: Thanks, CM! I’ll post these numbers with the September House Price Index
  

• 

  Snowman // November 17, 2009 at 7:24 pm

  titicaca, if you think Nikki’s got it wrong, just look at Garth’s predictions from October 2008.

  In the next six months we will see the following:

  Eastern cities, including Toronto, will have markets fall another 10%, for a peak-to-Spring decline of 25%.

  Albertan cities will decline another 10% as well, for a rout of 30%.

  Vancouver will crash 20%, taking the average price down 25%, on its way to 40% prior to the 2010 games.

  Montreal and Ottawa will decline about 12% by Spring from the peak, while Maritime cities will escape absolute reductions, and merely flat-line.
  Condo prices will erode the most, especially in Vancouver and Toronto.

  Flashy new landmark towers in those same cities will never be built, while in Calgary they already know the score.

  Large builders like Mattamy, now desperately cutting prices by more than $30,000 a unit and giving away free cars, could see their business volumes fall by two-thirds.
  Recent, equity-less owners will owe more than they own, and enough of them will walk to generate shocked headlines.

  Interest rates will crash lower, but mortgage rates decline far less. Renters will trump owners.

  Sometime next summer, maybe the fall, perhaps sooner, there will be major buying opportunity on certain kinds of real estate which have a sustainable future. More to come on that.

  Shouldn’t Nikki post this on her website as well, make Garth look not so brilliant, but then I guess she doen’t want to lower herself to that level.

• 

  titicaca // November 18, 2009 at 1:01 am

  Mike,
  Forecasting the future is an act of humility. Maybe we should all give up on it. What is interesting is why the inventory low? What is your rational?

• 

  TT // November 18, 2009 at 9:53 am

  Just a thought on low inventory levels. When people are expecting prices to continue to increase, they hold their homes waiting for further upside and try to maximize their gains. It seems most Albertans are convinced prices aren’t going any lower, so why sell now if they can sell later for more?

  A slight change in consumer sentiment within the RE market would likely result in a large influx of listings as people try to cash out on their homes prior to a softening in prices. This could possibly swing things significantly into a buyers market as competition to sell increases. At the same time, buyers could be hesitant if they thought prices were going down…why buy now if I can wait and buy for cheaper later!

  I’ve made a couple posts here in the past, so I don’t think it would surprise anyone to hear me say that I think this “change in sentiment” could be coming in the next 12-18 months. I think it is a general concensus in the industry that current sales levels cannot persist as we run out of “pent up demand” (something I’m tired of hearing….it’s mostly attributable to something called lowest interest rates in the history of Canada!). There’s now talk of the RE bubble in MSM, something I had not seen in the last several months but have noticed several articles in the Globe and Post (although today’s Sun had a glowing report on housing with no mention of a possible bubble…I wonder if they make money from RE ads???) in the last 2 weeks.

  Further to this, Mark Carney (head BoC) has expressed explicit concern regarding lack of prudence from lenders and buyers that aren’t taking into consideration the eventual rise in interest rates. He has suggested he could use his “tools” to cool things down…short of interest rate increases (likely by mid-2010) it could amount to a decrease in allowable amortization period or raising the minimum down payment, both having an affect on purchasing power. This would further extinguish demand, which we see is already tapering.

  But the real kicker is when a guy like Peter Aceto (CEO, ING Direct Canada) steps up and actually expresses concern that there is irrational behaviour in the Canadian RE Market. He works for a bank, and they are the ones making gravy with the CHMC backed loans.

  “He acknowledged that his comments will likely not be popular with money lenders since he is also in the business of selling mortgages. “What I do know is that we shouldn’t be focused on the short term,” he said

  “We shouldn’t be interested in just selling mortgages to get our numbers up for the next quarter. If banks help our customers make the right financial decisions, then we will have a healthy and happy consumer and economy. It just makes sense.”"

  http://www.yourhome.ca/homes/realestate/buyingahome/article/724613–mortgage-lender-warns-of-housing-bubble

• 

  TT // November 18, 2009 at 10:05 am

  PS – Mike I appreciate that you bring this all to attention in your blog. Unfortunately most agents put propaganda on their websites like poor little Nikki (she got more than she deserved, but some of it was very deserved, i.e. plagarising “reasons to buy” from US RE websites). People have to remember that agents aren’t economists, they have bills to pay and need activity to be able to afford their own mortgage payments!

  Mike, from your standpoint, when guys like Mark and Peter start issuing warnings, are we already too far gone? How bad does it have to be for Mr.Aceto to actually challenge his own industry?

  I also wanted to elaborate on the low listings a touch further as we just recently saw what happened when the sentiment changed last fall….listings galore as people became worried that price was falling. As a result, prices did drop substantially and I am pretty comfortable saying that the tail spin would have gone further had interest rates not dropped to stop the bleeding.

• 

  CM // November 18, 2009 at 11:10 am

  TT, I enjoyed the analysis you just posted (probably because I agree with pretty much everything you’ve said).

  One of my favorite dissections of a housing bubble comes from …

  http://www.irvinehousingblog.com/blog/comments/houses-should-not-be-a-commodity/

  It’s an interesting look at the psychology of a bubble market.

  Enthusiasm Stage
  Greed Stage
  Denial Stage <– I think we're here
  Fear Stage
  Capitulation Stage

  Denial Stage
  —————
  "Right now, we are in the denial stage. Prices have not dropped enough to cause real fear.

  Buyers who bought in the enthusiasm stage are still ahead, so they feel no urgency to sell. They have made good money already and they will hold on with hopes of making a little more. Since they believe the asset will appreciate again (and they have no exit strategy), this group of buyers does not sell.

  In contrast, the few traders who still hold positions liquidate and go back into cash. Successful traders recognize denial as a signal to exit their positions to lock in profits or prevent further damage.

  So why can't prices rally here? There are two reasons: First, the pool of buyers is depleted as discussed above, and second, the excesses of the bubble are causing a contraction in credit terms. There are fewer buyers, and those who might want to buy can't borrow the large sums needed to push prices higher. Market psychology hasn't really turned yet, but technical factors are getting in the way.

  Fear Stage
  ————
  "The most important psychological change in the market as we enter the fear stage is the belief that the rally is over. Price rallies are self-sustaining: prices go up because rising prices induces people to buy which in turn drives prices even higher. Once it is widely believed that the rally is over, it is over. Market participants who once only cared about rising prices now become concerned about valuations. Since prices are far above fundamental values and prices are not rising, there is little incentive to buy. The rally is dead."

• 

  TT // November 18, 2009 at 1:25 pm

  CM – very compelling blog! Thanks for the link.

  I really like the Valuation vs. Time chart and it is eerie to think how accurately it relates to the current RE market in Canada and AB.

  http://www.irvinehousingblog.com/wp-content/uploads/2007/06/bubble-psychology.jpg

  It always seemed obvious to me that the bubble started back around 2001-02 in Calgary as home prices started to decouple from income growth and the 25 year average growth rate in home prices which basically tracks the CPI. Speculation became rampant and people started treating houses like commodities.

  Check out this BoC inflation calculator:

  http://www.bankofcanada.ca/en/rates/inflation_calc.html

  1980 Avg price = $93,777 (actual)
  2001 Avg price (calculated) = $203,064 and the actual was $194k…pretty close. Try to calculate for 2009 and it tells you $237k…and here we sit double that!

  We clearly appear to be in denial after the slight correction we saw last fall and the government has set the “Bull trap” with lower mortgage costs and Canadians are taking the bait.

  Now compare the generic bubble psychology chart from Irving above to this one below, and you can start to see where we are headed! Very similar, very scary, very hard to deny:

  http://tamara.spacemonkeys.ca/blog_photos/20060615/calgary_home_prices.jpg

• 

  CoffeeTims // November 18, 2009 at 1:50 pm

  It’s very interesting that poor Nikki is being criticized here for cut and pasting US data and arguing that the Canadian market is similar.

  Where have I seen that kind of thing before I wonder?

  The irony is that at the end of the year at least, Nikki’s analysis is probably 100% more accurate than Garth was.

  TT you are basing your argument on a variable (shadow inventory) that can never be measured and so it’s impossible to argue with you.

  I’ll bet there’s some houses being kept empty but not as many as you think… And I’m also willing to bet that our somewhat spineless central bank will help those poor folks out by keeping interest rates low if and when the market drops.

• 

  TT // November 18, 2009 at 2:45 pm

  Thanks for your response CoffeeTims.

  I appreciate that you don’t want to argue. I wonder though what can you offer for analysis as to why there are so few listings in Calgary as prices are recovering? I’m not saying that houses are sitting empty, but you are correct that I cannot confirm or quantify the fact that people are expecting house prices to climb and are simply waiting to sell. But if you think, and think critically at that, it does make some sense. The bottomline here is that Garth Turner, poor Nikki, Mike F, yourself, or myself are simply speculating on the future by digesting the information available to us. I for one encourage alternate views as it helps me think more critically about the situation on hand and the potential outcomes.

  But, I do know that people are expecting further increases (or so I am told). The article is not online (at least I couldn’t find it) but the Calgary Sun reported a survey today that found 43% of Calgarians expect house prices to rise next year. It was a optimistic report that was plastered between pages of RE Agent ads….

  And yes, the government has shown an aptitude for policies that help increase/save house prices, and I do not doubt that there would be “bail outs” to try and subdue the effect of a market crash. In the USA, the government has bought back peoples houses and the people rent them back….is that what today’s home buyers are purchasing homes for? In hopes that they can rent them back later? Is that really a solution to the problem, or would cheaper homes that free up disposable income that can help fuel some real (i.e. non-stimulus) recovery be better? The Tories have already shown their ability to “save the day” with great effect this year by allowing more CHMC insured mortgage holdings and reducing interest rates….without these I truly believe we would have nothing to talk about right now since the downward spiral would have continued past May 2009. But for how long or by how much can they stave off market forces? Again, I encourage your views on this.

  If you want to sit there and not discuss, or say it cannot be argued and that the government will save the day (by futher increasing debt loads for that matter) then I have no choice but suspect you are a classic case of bubble denial as illustrated by this website that was pointed out to us by CM. CoffeeTims, I hope you are not, and I hope to gather more feedback as to “how you see it”. Rhetoric gets us nowhere, constructive conversation can be to everyones advantage…

  http://www.irvinehousingblog.com/wp-content/uploads/2007/06/bubble-psychology.jpg

• 

  TT // November 18, 2009 at 2:48 pm

  Sorry CoffeeTims, one last thing to add.

  Don’t forget what happened last year when you say there is nothing to substantiate my assertion that people wait to sell if price go up, and start selling like crazy when this sentiment changes.

  Very real example less than one year ago…and I know you won’t be able to argue with that.

• 

  CoffeeTims // November 18, 2009 at 6:40 pm

  TT: Thanks for your well worded and thoughtful comments.

  I don’t like to argue when there is no way to tell who is right and who is wrong. You and I can never accurately measure how much “shadow inventory” there is, so the argument would never end. We can also never tell if there is more inventory or less than there historically has been. Remember that if a person waits to list the house they live in, they will usually buy another one after that.

  I completely agree that listings will increase when prices decline. I also agree that there is probably more “shadow inventory” than there usually is but I wouldn’t go so far to argue that it will surge onto the market in large numbers at once because

  A: the conditions supporting shadow inventory aren’t likely to change soon or quickly.

  Fixed mortgage rates actually went down today. The bond rates are being manipulated and kept down by QE and aren’t acting the way they should.

  If normal conditions existed, fixed rates would have jumped a long time ago and we wouldn’t be having this discussion. QE will slow when the US has reduced its debt load to a sustainable level. I think we both know how long that will take.

  There’s a big hand holding back financial chaos and it’s causing a lot of strange side effects – I’ve found out it’s better to learn about what those are than to argue that it shouldn’t be there.

  B: the current vacancy ratio in listed Calgary SFH is the same as last October (28.9%). If there were lots of vacant houses held back, there should be a greater percentage in the active listings as unemployed and marginal sellers give up and list their homes, rather than holding onto the carry costs (these go up a bit in the winter).

  It’s notable that while all this inventory was “in” the listings last October as you correctly say (total inventory was 5522), the ratio of vacant/new construction is exactly the same as it is now. That’s a telling statistic and it’s the best surrogate measure of shadow inventory that I can come up with.

  If 43% of Calgarians expect house prices to rise, that’s actually quite pessimistic as historically prices rise a little bit on average almost every year. Did 57% expect prices to fall because that’s more than 43%. What percentage thought prices would rise this year? Those guys were right and they didn’t include you and me. Public expectations have very little to do with reality at the best of times.

  Your 3rd paragraph is based on the premise that there will be a housing crash in the near term which I would argue has come and gone. The Tories did not decrease interest rates. The world did. CMHC is a Canadian problem that needs to be looked at but I don’t think that will happen until after the next election so maybe your crash will happen then? The market’s irrational now and will go on being so no matter how much we hate it.

  As to your question about why inventory is low today, my answer is : it’s November, lots of people are still moving to Calgary, very few houses were built the last 2 years, Alberta is probably the only province or state in North America without debt, the 93% of Calgarians with jobs had their wages go up this year on average and interest rates will never be lower. The last point is probably the key as prices have jumped 20% across Canada.

  Maybe I was in denial earlier this year when I thought prices were going to go down. I underestimated the ability of banks to print money. I don’t lose too much sleep about it. I’m sure prices’ll continue to go up and then go down again one day. If that makes me someone in denial then so be it. Don’t forget that the bubble emotional phases apply in reverse to bearish sentiment as well… Maybe we should call them “bearbles”!

  -
  Mike Fotiou says: Lol @ bearbles. Thanks for this post – a lot of good thoughts. With regards to inventory rising when prices fall, do you think this spring will see a shortage of listings ?

• 

  C // November 18, 2009 at 9:47 pm

  Complacency, such as seen here and in real estate in general these days is an evil word…one that will destroy the world as we know it.

  Like Garth or not, what he says is reality. The only problem is governments keep trying to put duct tape on the leaks, and it is working, for now. But eventually the tape will run out….when? who knows, but it will. The cost of a home is far beyond income levels can support low interest rates or not. Anyone who thinks otherwise is an idiot.

  A realtor, should not be advising a client on the future of real estate, and should only help to facilitate a sale. Just because a realtor takes a weekend course for a license does not make them an expert. Just because a realtor has done well this last decade of easy sales, does not make them an expert.

  The market will have a significant correction…..when is the only variable.

• 

  titicaca // November 19, 2009 at 8:47 am

  Signature Capital exemplifies the emotions of shock, denial, anger, and acceptance as chronicled on the forum:
  http://forums.canadianbusiness.com/thread.jspa?threadID=17297&tstart=0

  It begins with a simple question “Should I invest in Signature Capital?” and ends in crying over spilt milk.

  While living in Bridgeland I walked by the “guaranteed 13%“ sign many times thinking it was such a pleasant number designed to trigger the greedy feelings.

  -

  Mike Fotiou says: Thanks for that link…quite a read. Not really indepth, but I wrote this last November: Real Estate Investments – Protect Yourself

• 

  TT // November 19, 2009 at 12:51 pm

  Coffee Tims – all very valid points. Thanks for the response.

  Particularily the last, as this exact sentiment is what has probably been driving my defense and what I ultimately believe is my ownself attempting to convince or confirm these ideas that I have developed.

  Upon further reflection I realize that no matter what any of us believe, think, say, or want to happen, things will unravel as they unravel. I am happy that I have taken time to consider the current economic environment (probably more than the majority, as people such as ourselves seem to be a select few that consider putting things in perspective) but I shouldn’t allow it to frustrate me.

  At the end of day the future is unwritten and as much as I’d like to know how this story will end I can’t force it to be and know that there will be many twists and turns along the way. I am in a forunate position and know that I can put myself in a position to handle what ever does happen (as long as the paycheck keeps coming!). With supply such as it is right now I know I will be waiting for a change before making any moves. Ultimately the goal is home ownership and I know I’ll get there by reacting accordingly to whatever these strange days deal out! No sleep to lose, or heated arguements required. Just gonna enjoy life cause I only have one chance!

  Again, thanks for your consideration and responses!

  -
  Mike Fotiou says: A similar thought was recently expressed by a client whose input and analysis I very much have appreciated in the past. In the end, “the market is what it is.”

• 

  Snowman // November 19, 2009 at 6:26 pm

  “Like Garth or not, what he says is reality. ….. Anyone who thinks otherwise is an idiot.”

  Yeap, that’s Garth alright and his followers of course.

• 

  DaBull // November 20, 2009 at 11:08 am

  titicaca

  That 13% is an extremely low return for development money these days. In the hey-day 13% was probably high considering the amount of new investment companies that started up. As an example there is a well known home builder out there right now giving 6% which they recently dropped from 8% because of the lack of projects and the excess capital sitting on the sidelines. ie. They now have access to more funds than they will ever need so they lowed the interest rate they are willing to pay. And even with that there is still a line up of investors waiting to get in. This home builder looks after it own funding so it doesn’t have the added expense of a middle man like Signature Capital.

  My wife is a private money mortgage broker and has been giving out interest only equity loans (registered as mortgages) for the last 20 years. Her investors have never lost a cent because she follows very prudent lending standards that change with the economic conditions. In these current conditions she is increasing loan to value ratios and only giving seconds if the loan to value is less than 50%.

  With her company the average rate of return for investors for the last 20 years was 15%, but is now down to 11%, again because of excess capital that investor are sitting on.

  Personally I would never lend money to a developer at less than 20% because of the risk unless of course it was a well know developer like the home builder I mentioned above.

• 

  DaBull // November 20, 2009 at 11:21 am

  Sorry that home builder dropped their interest rate from12% to 8%, not 8% to 6%. Interest is payable every 6 months with an option to either be paid out fully or renew for another 6 months. Plus they don’t want any phone calls, if you do they will simply just give you your money back, plus accurred interest, and grab another investor from their long list of one’s in waiting. They have been doing this for many many years and haven’t had any [problems to date.

  -
  Mike Fotiou says: Which homebuilder is this?

• 

  Nikki // November 21, 2009 at 10:03 am

  First, I have to say I did not plagiarize any website. I simply referred to an article from a data base of ezine articles that are free for distribution, so lets get that clear first.

  Secondly I resent being referred to as “Poor little Nikki”. That is suggesting that I’m young and silly. I have been involved in real estate for many years and am not remotely naive nor am I even trying to predict the future of real estate in Calgary.

  “C” you said: A realtor, should not be advising a client on the future of real estate, and should only help to facilitate a sale. Just because a realtor takes a weekend course for a license does not make them an expert. Just because a realtor has done well this last decade of easy sales, does not make them an expert.

  First – a weekend course? Are you serious? Look into it. I agree that those of us in real estate over the last 10 years are experiencing a new market, but to say that anyone with that many years experience is not an expert… well what is your definition of expert? An expert in economics, or real estate? I would argue that most realtors who have been working full time in real estate over the last 10 years have a fair amount of expertise in facilitating real estate deals…

  I was simply a victim of a cyber bully who is a real estate Extremist trying to sell a book based on nothing but his skewed interpretations. The people that read his blog were not even remotely interested in discussing the article that was posted, instead they developed a mob mentality focused entirely on how I look.

  Whether people think I’m “sexy” or dressing like a “vamp” is also based on opinion. The fact that this clown took a small picture of me and blew it up over 100x its size is evidence he was only looking for a piece of text to place below it to accuse me of being some air headed young tart trying to sell herself instead of real estate.

  Any of my past or present clients would tell him quite the contrary. Oh, and if 42 years old is considered “young” then I guess I’m guilty.

  Mike, except for a few misguided and uninformed opinions here, it is nice to see that you have following that are intelligent and have viable opinions based on a topic other than just my clothes.

  Keep it up.

  Cheers,
  Nikki Harrison

• 

  CM // November 21, 2009 at 12:15 pm

  Good writeup by Kevin over at EHB about the bubble and how we got where we are…

  http://edmontonhousingbust.blogspot.com/2009/11/whos-to-blame.html

• 

  Carioca Canuck // November 23, 2009 at 11:52 am

  Poor little – **POST DELETED**

  -
  Mike Fotiou says: If you want to talk to Nikki, please do it elsewhere

• 

  C // November 23, 2009 at 1:50 pm

  Nikki, **POSTED DELETED**

  -
  Mike Fotiou says: No more Nikki comments, please.

• 

  CM // November 23, 2009 at 3:32 pm

  Hi guys,

  I’m trying to show the girlfriend what the premium cost is for renting from a bank (aka owning) versus renting from a landlord, for an average Joe in Calgary, ‘owning’ vs renting an average home.

  RentVsBuy.xls
  http://www.mediafire.com/?jjygwny1uma

  Just wondering if anyone had any feedback on the calculations, or anything else I could add?

  Here’s what I’ve come up with for the average Joe in Calgary so for…

  price: $410k (median price right now)
  downpayment: 10% or 41k
  mortgage rate: 4%
  + property taxes + insurance + maintenance + realtor fees (all per month)
  -
  rental price: $1575/month (current median price)
  =
  premium of ownership: $456/month

  If the mortgage rate is 5%…
  premium of ownership: $763/month

  If the mortgage rate is 6%…
  premium of ownership: $1071/month

  If the mortgage rate is 7%…
  premium of ownership: $1378/month

  cM

• 

  Mike Fotiou // November 23, 2009 at 5:40 pm

  CM, if I may add a couple points:

  Instead of comparing the median sale price with the median rental price, it would be best to find a property you are interested in buying and then find a comparable one for rent and begin the comparison process that way.

  Second, equity would be built up over time with the eventual paying off the mortgage. Now I understand this would be difficult to calculate – how much appreciation (or depreciation) do you account for? However, regardless of what the market was doing, you should have less remaining on your principal as time goes on.

  Thirdly, 7% is too high for real estate commissions. Real estate commissions are completely negotiable but for the best example: 7% of the first $100k and 3% of the balance of sale price would be a better estimation for Calgary. Or $995 + 3.5%/1.5% if you sell through me. Or no fees if FSBO.

  Fourth, if money is saved by renting, calculate how much return would be gained by those savings if invested.

• 

  CM // November 24, 2009 at 9:43 am

  Thanks for the help Mike, I’m working on version 2, and will definitely incorporate the advice you’ve given.

• 

  Gulsen // November 24, 2009 at 12:55 pm

  All this recent bubble talk is based on the assumption that CMHC is approving subprime mortgages like the U.S. lenders did, however I have yet to see any proof. Just because someone takes out a 35 year at 5% doesn’t make that a subprime mortgage the way we mean it when we talk about the U.S. We still have to have good job history and credit from what I’ve seen and heard, which was NOT what happened down south when apparently any shmoe with a heartbeat could be approved.

  Second, from the CAAMP report which is the organization representing the Canadian Mortg. industry only 27% of mortgages registered up to now this year have been variable rate and 5 year terms are most popular. Compare that with 80% variable rates which was the situation in the U.S. – those are the people who defaulted!

  Third, the report states “this analysis indicates
  that most mortgage borrowers will be very able to cope with any changes in interest
  rates that occur at their next renewals.” I can concur personally. I have a crappy mortg. rate that i’m stuck with for a few more years (much more than the average 4.5% now), and i have an average house, and we have one good (not rich) income and we’re doing just fine. If rates do go up most people feel confident they can still make their payments. Not to mention that income is rising fast in Canada which may help out by the time rates increase.

  Fourth, if unemployment occurs: •The duration of unemployment (which is “as important as unemployment rate”) is much lower in Canada. That means Canadians can more easily get replacement jobs to pay their mortgage if they lose work. These points are from a CIBC economist. He also says:
  •“It’s all about (consumer) confidence,” •Canada will outperform all other G7 countries in GDP growth in 2010.

  Fifth, as for foreclosures occuring because of unemployment, well we’ve had lots of unemployment in this RECESSION (which we are getting OUT of) and the arrears rate is at half a percent, yes it’s doubled in recent years, but we’ve been through a RECESSION keep that in mind, and still no crash.

  Sixth, I agree the CMHC should be very closely watched but the fact they are a crown corporation, not private, is yet another way we differ so much from the U.S. (fanny mae/mac were private); this is a good thing people. CMHC is not out to get us. If a crisis should even begin to occur, the government is in control, not some private corp. They have a lot of money to cover arrears.

  Lastly, as for Garth Turner, he’s been bashing real estate for 20 years! In that time holders of real estate have become extremely wealthy! Poor you (literally) if you listened to him years ago. I believed he also encouraged investing in stocks. LOL. He had it all backwards! Not to mention is crazy political career switching from Conserv. to Liberal, not getting re-elected…what a character. In a recent interview Thursday you could hear him backpedaling saying he does NOT fear a meltdown like that of the U.S. That’s from the biggest fearmonger around. He now predicts (now remember, start believing the exact opposite) a 15% decline over the next several years…hey wait, didn’t we already see a drop in house prices 15% between 2007-2009? If that’s his definition of a being “as bad as the United States”, well you’ve lived through it, just like me and we’re fine. He’s still giving misleading information because 30% decline is what the U.S. has been through, not 15, which is more of a large market correction, and as I pointed out, their situation was in FACT (not fear) quite different. I just wrote and deleted the names I really wanted to call him. Not going to go there.

  If you keep real estate (especially rental ones) as LONG TERM investments history and mathematics say you will eventually come up a winner even if your house prices appreciate little. You’ll have a paid off home and if you’re really smart rental income from those who unfortunately may have been scared out of buying a home for their family. Buying is not an if but a when in my opinion; think how much do you expect prices to go down, rates to go up, how much rental will you throw away while you wait, just play with the numbers. Canada is an awesome country economically and culturally and personally, I will own as much of it as I possibly can

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  Mike Fotiou says: Gulsen, I appreciate your well thought out points. I can’t comment on all of them right now, but this bit of news was interesting (regarding your points 1 & 2): Even those with fixed rate terms are defaulting in the US. Americans with solid credit ratings comprised 33% of this quarter’s foreclosures. (Source: Globe & Mail)

  What concerns me is that the Canadian government is heavily relying on consumer prudence rather than enacting any measure to prevent those that aren’t financially sensible from being enticed into buying too much house because of current interest rates.

  Interesting article today: “Canadian real estate prices are inflated, but they’re unlikely to correct themselves in the short term, a Bank of Nova Scotia report suggests.” Scotiabank Hints at a Housing Bubble.
  

• 

  Jimmy // November 25, 2009 at 2:01 pm

  CM:

  You are looking at apples and oranges when you compare the median 410k price to rental properties. I would bet that most rental properties do not cost that much.

  There are many upper end properties affecting the median of 410k that would not enter the rental market.

  Mike F what do you think the average rental property in Calgary costs?

  Owning is not renting from a bank. It’s more like a large loan with a house you live in as collateral. The bank can’t kick you out if a lease expires and you get to pick what you do to your house.

  And like Mike F says, when you pay down a mortgage, that amount is built up as equity and comes back to you when you sell. You don’t get the rent you paid your landlord back!

• 

  CM // November 25, 2009 at 2:42 pm

  “You are looking at apples and oranges when you compare the median 410k price to rental properties. I would bet that most rental properties do not cost that much.

  There are many upper end properties affecting the median of 410k that would not enter the rental market.”

  Hi Jimmy,

  I’ve thought about this, and I tend to agree with you for the most part.

  But when I look at rental properties listed on rentfaster (SFH) and compare them with what it would cost to buy the equivalent property, it still seems to always come up to the same ratio (approximately 250X rent)

  But I do hear what you’re saying… the fact remains though that the median SFH for rent in Calgary is $1600, and the median SFH for sale is $410,000.

  Are the houses for rent worth less than the houses for sale, on average? Could be I suppose.

  I’ve noticed the median rent for SFH has really started to soften these last few weeks…

  http://tinyurl.com/y87t2lo

  It had remained pretty solid at $1600 for the last few months. I’m thinking it could be at $1550 (3% decrease) by mid December.

  “Owning is not renting from a bank. ”

  I usually use this statement to educate people who always come up with the statement ‘renting is throwing your money away’ without actually considering the calculations involved.

  You don’t get the interest you paid your bank back either!

  The fact is, owning is NOT always the smarter decision financially.

  Kevin over at EHB has an excellent rent/buy calculator designed…

  http://edmontonhousingbust.blogspot.com/2009/11/rent-vs-buy-calculator-v10.html

  It factors in everything, including the opportunity cost of the money that you’ve placed into your down payment, realtor fees, property taxes, insurance.

  There is a ‘premium’ that comes with the emotional satisfaction of home ownership.

  I’m not against home ownership in any way. And I think for most people it is an excellent savings vehicle that forces them to be responsible.

  For me personally, I just feel there are certain fundamentals in the marketplace right now that are *completely* out of whack.

  Funadmentals that, for me, make putting a large sum of money back into Calgary real estate vs renting a similar property a no brainer.

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  Mike Fotiou says: I contacted RentFaster.com last month regarding getting some statistics from them & they responded: “We currently do not offer a stats package, however we are tracking them in various forms and working on launching something in the near future.”

  That would certainly be helpful!