- the source for market opinions


June 17, 2016 | Dog Mail 2

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.


Back by popular demand. (Man you people need a lot of help….)

Long-time reader & avid believer. I am a thirty-something college educated male, with a girlfriend the same; combined annual income of $160,000 and currently renting a town home in the lovely city of Langley. Both of us are in sales, so location is irrelevant as long as it’s within a reasonable commute to the Greater Vancouver Area.

This lovely modern version of the Canadian Dream was tipped on its side earlier this week when our landlord informed us that he plans on selling (seeing that unit next door sold for $530,000 in 3 days). This has now forced our hand. Just as I was convincing my better half that we stand to profit by waiting for the impending popping of the bubble.

Rental opportunities are scarce, unless you are looking to spend $2700/mth and/or require 5 bedrooms. Has my hand been forced? Do I dump all of our savings into the one thing I preached against just as the savings account is starting to see some commas? Or do we over-extend and rent a 5 bedroom home in the heart of the urban farmland and laugh at all the suckers?

Help! Derek.

Two things to consider. First, financial. Run the numbers. See in what scenario you build net worth the quickest, given the obvious assumption residential real estate in the entire Lower Mainland is on its way to being pooched. And when you calculate, don’t make the amateur mistake of comparing monthly rent to monthly mortgage payment. In buying, you have big closing costs, property tax, insurance, maintenance and, of course, the lost investment power of your entire down payment.

Second, why (in your 30s with job flexibility) would you choose to be saddled with a property and a mortgage in that location? Without a doubt, when the property tidal wave washes back to the sea, it will drain the exurbs first, and the urban core the last. Not only does this put you at large financial risk, but you might end up with an illiquid house, destroying your mobility. There are some good places in this world to be trapped. Langley ain’t one of them.

Hey Garth. We have $300,000 left to our mortgage and 17 years left. My wife and I are debating to renew with 2.49% for 4 years or 2.59% for 5 years.

What would you recommend? Thanks, Corey.

Seriously? You’re writing this grandiose, puffed-up, epic blog to make a 10-basis-point decision? That’s pathetic. Five, of course.

Hi Garth – I am an intermittent reader of your blog and without a search function my question may be redundant but here goes… What are your thoughts about purchasing cottage property in the Muskoka area?  I realize this is pretty general but wonder what you see happening in that market in the near future?

We do not currently own property in TO (unfortunately) and as we are not desperate, refuse to participate in the TO housing madness! Appreciate your thoughts. Thank you, Evelyn.

You’d be far wiser to strip yourself naked and wade into a fierce, Vikingesque winner-takes-all, rape-&-plunder bidding war in 416 than go and buy a cabin by the lake in cottage country. At least urban detached real estate is limited in supply and always enjoys a certain level of demand, while rural properties are infinite, volatile and easily fall out of favour. When a correction comes (and one will), cabins, cottages and hobby farms take it up the rear. That’s because many are bought with financing borrowed against city properties, and in a downturn everybody wants to get rid of debt. So, the rural love nest is punted.

Besides, a half-decent Muskoka place on water will cost you at least four large. And you’ll stay there – what? – three or four weeks a year? So why not just rent a place for a month each summer? Way cheaper. Less risk. Get a grip, Evelyn.

This is a random question but one I don’t know what to do with and I’d appreciate your thoughts (I love the blog). I’m moving from Hamilton to Toronto for medical residency – have to live downtown for work reasons and I will be there for 4 years with the possibility of 2 more depending on fellowships. During this time income goes from ~60k to 85k/year. I have outstanding student loans on a professional line of credit.

I’m currently looking to rent, but it seems most apartments are ~2k/month for a 1+ that can handle me, my dog and wife. I know you occasionally think buying is a good idea, and wonder what your thoughts would be for me? I’m looking at 100,000 in rent over next 4 years, vs. buying the same box for 400k or so. I agree that rates have to go up, and that Toronto real estate is overpriced, but talking to some of the economists I know who work at the big banks they feel housing will stagnate but there won’t be significant declines. Regards, David

With student debt (that it sounds like won’t get paid off soon) plus two dependents, and a temporary posting, why on earth would you voluntarily walk into a mortgage? Besides, you’re looking at this the wrong way. A $400,000 condo with 5% down will cost $1,900 in payments (with CMHC premiums), plus about $400 in condo fees and $250 in insurance and property tax. That at least a $500 monthly premium over rent – or a $24,000 hit over 48 months. To just break even, after four years (taking selling costs into account) you’d have to unload for at least $450,000 – and still face a mortgage break fee.

Meanwhile, thousands of new condos will have flooded onto the market, rates will have risen and your unit could actually have depreciated as a result. So, why on earth would you take the risk when you can live in exactly the same place for hundreds less a month? You claim to hang out with economists? Scary.

We’re both 27 with full time jobs in Toronto. Combined income of $140, 000 with $22, 000 tuition debt. We rent for $1, 000/month and have an excel budget that we follow religiously. Our $65, 000 savings can easily pay off the tuition debt but currently its low priority because for us cash is king, sitting in rsp and tfsa (hedged against maple). The wife is in consulting, servicing the mining and construction industry and layoffs occur at a constant trickle so you can understand why cash flow is important. I’m at a retailer HQ where I’m protected by people’s everyday demands for necessities like food, clothing, drugs etc. so we’re better positioned than most people…like our crazy peers who make less than us and have $500, 000+ homes.

We’re stuck though…both agreeing that we’d like to have children and a house. For some strange reason we’ve both been brainwashed into thinking this is a must have combination.  IMO a condo, townhome or semi-detached would be out of the question since we both grew up in modest rural southern Ontario and can’t imagine paying for overpriced pieces of #[email protected]! So we continue saving and paying rent while people around us ridicule and talk about picking up a property to rent to people like us. I’m a 2nd generation immigrant by the way and know how to penny pinch (thanks to Mom and Dad). I’ve been instilled with a very acute overvalued radar that many in Canada just don’t seem to have. My wife is level headed (a Nova Scotioner) and the only horniness she has right now…well isn’t for housing thank God 😉

Any advice as to what we should do aside from the obvious which is to pay off the $22, 000? That’s just a simple rate of return calculation, transfer and click away in our bank accounts. If you use our story can you keep it anonymous? Thanks, Tom.

You want free advice and anonymity, too? Damn Millennials. Actually, Tom, you have a net worth of $23,000, or enough to buy a Kia. That may be good for a downpayment in Bridgewater or Upper Shubenacadie, but it won’t cut the mustard in T.O. So, your letter is heartfelt but dumb. No, you cannot afford a house. Suck it up.

I wanted to add my voice to the numerous people who owe you a lot of gratitude for what you do here. Comment sections typically bring out the most extreme views and they don’t represent everyone.

Quick summary of my situation:

My lovely wife and I got our accounting designations in Vancouver in 2009 as the feces hit the air mover in the financial world. We were pulling in $100k together and had recently been preapproved for an $800,000 mortgage. Friends were envious of what we could get but between reading your pathetic blog and being generally uncomfortable with such a high debt ratio, we held off enslaving ourselves to a mortgage.

Glad we did. My wife was laid off as the crisis developed and we were able to look for work and move cities in under a month. We went north to Yellowknife for higher pay and greater opportunities than Vancouver could give us. We paid off $50k of student loans in a year and saved a healthy nest egg (because what else will you spend your money on in Yellowknife?).

Fast forward 5 years and we’ve moved to Saskatoon and Edmonton where we’ve seen the housing mania peak. With the dismal rental situation in Saskatoon at the time, we did buy a small bungalow well within our means with 20% down; the mortgage broker thought we were insane given our household income — “You could get a million dollar home on Sask Crescent if you want!” As the commodities started to slow, we saw the writing on the wall for the Saskatoon housing market, sold just in time and moved to Edmonton. The oil glut hit and the company I was working for was clearly going to be in trouble, so we seized an opportunity to move to Australia in 30 days. Something we could never have done if we were tied down by a house.

Looking back, I see friends who barely scrape by with debt and lower wages in Vancouver, now unemployed former colleagues in Alberta, and other friends still trying to sell their homes in Saskatoon at a 20-30% loss after moving away.

Garth, thanks in large part to your very reasonable and logical view of finance and macroeconomics over the years, we’ve been able to get out of debt, see the world, and have $500k in investments and retirement savings before age 40. Without your dissenting voice to encourage our contrarian view, we might very well have made some big(ger) mistakes and wouldn’t be living a dream life in relative financial security.

Please just let the haters hate and keep on doing what you do. Many, many people owe you a debt of gratitude.

And the rest hate me. But thank you.

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June 17th, 2016

Posted In: The Greater Fool

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