Every real estate bubble in history has burst: Garth Turner
Excerpt from a Globe and Mail story on Garth Turner and his latest book, Greater Fool.
Garth Turner has some unsettling news for Canadians who’ve tied their financial future to their homes – every real estate bubble in history has burst, and there’s no reason to think it will be different this time.
Mr. Turner’s new book, Greater Fool, The Troubled Future of Real Estate, argues that Canadians have been buying homes at inflated prices by taking advantage of expensive mortgages that last 40 years and signing up for incentive plans that allow them to forego the traditional down payment. As a sub-prime-mortgage crisis unfolds in the United States, with more than 400,000 families losing their homes in the past year and a million more said to be on the brink, should they smugly assume they are insulated because of high commodity prices and a strengthening dollar?
“When the average family can no longer afford the average home, how can so many people be deluded into believing a boom will last forever?” he asks. “How could we put so much money into something we might never be able to sell, except to a greater fool?”
This article is a very interesting read. Check it out here.
Garth’s blog is also worth following.
I’m always happy to answer your Saskatoon real estate questions. All of my contact info is here. Please feel free to call or email.
Follow our daily updates on Twitter @SaskatoonHomes.
Norm Fisher
Royal LePage Saskatoon Real Estate
29 comments so far. We'd love to hear your thoughts.
May 15th, 2009 at 11:26 AM
Doom and gloom on a Sunday morning, I’ll continue to live in my fantasy world of easy money thank you very much.
May 15th, 2009 at 11:27 AM
Mike C,
Lol! You might want to save some of the “fantasy world” money just in case it is a bubble.
May 15th, 2009 at 11:29 AM
I hope this book is true!! I’m planning on buying in Saskatoon, in 2 years, give or take a year, but I don’t want to pay Edmonton Prices for Saskatoon. I make $150,000 a year in Fort McMurray and with my student loans I would be currently strapped to buy anything in Saskatoon that I would call a home for me.
May 15th, 2009 at 11:30 AM
Comparing Canada’s real estate situation to the subprime crisis in the US is disingenous. They have nothing in common thank god. I am worried about affordability in Canada but I will take my advice from people with better track records on real estate prognostication than Garth Turner. Look it up, he’s never right.
May 15th, 2009 at 11:31 AM
Norm,
We kind of discussed this on another thread. Mr. Turner has been saying this since the early nineties. I am not saying that what he says isn’t valuable, but after saying it for 15 years and seeing the increases I can’t say his opionion holds any more water.
Personally I see two camps. If someone is making a long term purchase (10 plus years) and it is truly within their means I don’t see any issues with getting in the market and having a home for your family. As long as it is within one’s means, a downturn won’t affect the quality of their life. ]
Investing is another story. Buying a house to flip in this market would be scary. Last year no, but where we are yes. If someone has that kind of cash, go for it. But to take out second mortgages or withdraw equity from a place that is paid off, there people may be the most affected.
I didn’t read this article but when Heather posted it Turner was calling for a drop of values in the 15% range. As I said before, when your place goes up in value at 10% per year (or even 3-5%) for 5 -8 years, a 15% loss isn’t really that big of a deal.
May 15th, 2009 at 11:34 AM
callum and Jedi,
Yes, I think I mentioned in another thread that I heard him telling this story long ago and that the price of a Saskatoon home has tripled since then.
I definitely think what we’ve experienced could be characterized as a “bubble” though and I just can’t imagine that it’s forever sustainable. Given that we are at our worst point as far as affordability is concerned, I do have some concerns. Something is wrong when an average family cannot afford an average home.
I can’t help but point out that we’re not living in a vacuum either. While the Saskatchewan economy is strong, there is some weakness around us right here in Canada and the US economy is on the brink of collapse. Alarmist? I don’t think so. They are just a Bear Stearns away from tanking pretty big. Not sure if they can keep propping that baby up forever.
All that said, I agree with your comment about buying if it’s affordable. There are certain benefits to ownership that can’t be leased. Any loss we might experience will be temporary. If I thought a major collapse was imminent I’d be putting my house on the market.
May 15th, 2009 at 11:34 AM
The question is what’s affordable? Is 40% of your income towards a 40 year mortgage considered affordable? I tend to think not, but many others are buying into it.
Personal home real estate is meant to be like a savings account. It is supposed to marginally increase in value over long periods of time, it is considered to be safe and nonvolatile. People can and do make better money by investing in stocks, bonds, etc. Our market trend is so far out of whack Garth Turner is right for questioning it. Sure we NOW know that Saskatoon was undervalued 2 years ago. Now it’s overvalued. We have to find a balance, and if we don’t find it, it will find us. That’s what Garth is saying.
May 15th, 2009 at 11:35 AM
I had no choice to take a 40 year mortgage. It’s a heavy slap to the face for sure. It means I have to sell for $30,000 more to break even.
I do know however that it is unlikely that house prices will decline below the value of my current home should the time come for me to ever sell it. I’m not aspiring towards a rapid increase in value, so I can bide my time without any major concern.
The bigger point however is that I pay just as much right now to have a house as I would to rent. So the decision is pretty easy – especially as others have stated – if I intend on actually living in the house.
That of course is changing as prices continue to go crazy everywhere. So, I consider myself lucky that I jumped ship in Saskatoon and bought in Winnipeg.
Crazy, huh? Who would actually live in a house?! Sheesh.
May 15th, 2009 at 11:36 AM
Alex,
Why would you have to sell for $30,000 more to break even?
May 15th, 2009 at 11:37 AM
$8,000 to realtor
$4,000 closing and moving costs
$4,000 to break the mortgage
$16,000 to put money in his pocket
May 15th, 2009 at 11:38 AM
i remember his prediction in the mid ’90s. he said vancouver ‘monster’ homes (the ones the hong kongers built) would bust big time because many were returning to HK and there was no-one else to buy them. ah ha…many of the immigrants didn’t return and along came lots of taiwanese and korean immigrants to buy them. so no bust. ozzie jurock calls the turners the “ya buts”.
May 15th, 2009 at 11:39 AM
Last Friday night, I went to a meeting put together by Shannon Christensen. She’s a homeowner who isn’t directly affected by the housing crisis, but is deeply concerned with the city’s (and the province’s) lack of concern and blatant ineptitude with this very important issue. I just received this email from her, and I wanted to post it here, in the hopes that any of us who are concerned about the low vacancy rate in this city and the number of pending condo-conversions that could be approved could have a chance to act and write a letter to the city by 5PM today.
I apologize for the short notice–in hindsight, I wish I was more on the ball on this one, but here we are…
PLEASE READ THIS, AND WRITE TO CITY COUNCIL!!!
===============================================
Good morning,
If you are having difficulty finding a place to live or if your rent has been increased I’d like to suggest that you send your concerns to City Council.
You can use the contact form on the city’s web site to do this:
http://saskatoon.ca/org/clerks_office/council/council_write_a_letter.asp
The next Council meeting is April 7. You must send your letters today, April 1st before 5:00 pm.
Your letter does not have to be long. A brief summary of your concerns is all that’s required. You may also want to point out if/how much your rent has increased in the last 12 – 18 months.
Also, be clear about what you are asking from Council. For example, if you are writing to ask them NOT to approve the 21 condo conversion applications, state that.
Just a reminder that the city does not have authority to implement rent control. That is a provincial issue. We’ll keep you updated on this.
As soon as David Forbes, Saskatoon MLA has drawn up the petition to the City to put a freeze on condo conversions we will have it available for download. You can print it out, fill it with signatures and return it to David.
NOW IS THE TIME TO ACT. Don’t sit back and wonder how this will all pan out – we already know the answer to that question. Please take a few minutes today to send your letter to Council.
Also, even if you are not a tenant you can still express your concerns! Several people have sent letters to Council because they see how the housing crisis is affecting their friends, loved ones, clients or someone else they know. Others just feel that what’s happening is wrong. Every letter will help!!!
Thank you for passing our emails on to others.
Updates to come.
Have a great day : )
Shannon Christensen
===============================================
As SOON as I get this petition, I’m going to do my best to get it out to everyone I know. I’ll post a link to it on facebook so that you all can distribute it as well.
As Shannon says, now is the time to act.
Thanks everyone.
May 15th, 2009 at 11:39 AM
Norm,
My house cost me around $120,000. Add on to that how much my mortgage lender would like to make off of me and any additional costs akin to what Toby outlined.
I can’t go to the lender and hand them the entire remaining principal and say “you’re all payed up!”
There are penalty fees and so on.
In this world, borrowing is to entitle your lender to money they don’t deserve. Even if you’re capable of paying them back in full.
There’s all these rules to ensure that if you pay back early, you’re still getting a good fleecing.
It borders on a non-service in my books because the costs are based solely on “you paid us back early”.
One thing I’d love to see is the government regulate the kind of compounding, and early-payment penalties that lenders can offer. You should never be penalized for paying back debt, that’s just stupid.
Imagine if they did that for student loans?!
While my house may exceed in value the price I paid for it, I’m tied to what the lender has set as a minimum gouge-goal on me.
May 15th, 2009 at 11:40 AM
Alex,
I misunderstood. I thought you were relating these additional costs to a 40 year mortgage.
May 15th, 2009 at 11:41 AM
Alex,
Here here on eliminating penalties for early repayment of a mortgage! THAT is CRIMINAL. Legal unfortunately, just like those money marts, but criminal nonetheless.
May 15th, 2009 at 11:43 AM
Here’s a bit of an update from Martin Been (who lives in the Milroy): please attend this meeting if you can.
====================================================
Greetings Everyone
The tenants of the Milroy have arranged for a meeting at:
the Parktown Hotel
Friday, April 4, at 7:00p.m.
room 140.
After meeting with various groups concerned with the housing crisis on Friday, March 28, we realize that the scope of this ongoing struggle has changed, as the court’s decision could potentially create and has already created a great deal of hardship on the rental community.
A round-table discussion will be “whether to appeal” the Court of Queen’s Bench decision allowing the city to approve The Milroy for Condo Conversion. The lawyer representing the Milroy, Mr. Andrew Mason, will be present at this meeting.
We are extending this invitation to everyone who has been affected by the housing crisis created by our municipal government.
Please bring any questions or concerns you may have, regarding this decision, to the meeting.
Milroy case documents including the Court Of Queen’s Bench decision are available at: http://www.dufourlaw.com
Martin Been
May 15th, 2009 at 11:43 AM
Heather and Alex,
“Here here on eliminating penalties for early repayment of a mortgage! THAT is CRIMINAL. Legal unfortunately, just like those money marts, but criminal nonetheless.”
“Criminal?” Actually, some people would call it an “agreement.”
There are plenty of mortgage products that can be paid out at any time. However, people often opt for whatever benefits they perceive as being attached to a mortgage that would require a payout penalty in the event that they opt not to honour the agreement they made. This is why we have various options but expecting the benefits of a long-term mortgage without any penalty for early pay is like expecting a fully-loaded vehicle for the price of a basic.
I don’t love my bank but there has been so much improvement in terms of early pay options and flexibility that it could make your head spin.
May 15th, 2009 at 11:45 AM
Norm,
While there has been improvements over the years, it’s not perfect. The reason people sign this agreement is because there are no other places offering better ones. I wouldn’t sign a mortgage agreement with one bank when another allowed me to pay off extra on my mortgage without limitations. When a person owes money, and then they have money to pay it back, why should they be penalized for paying it off? I just don’t think it’s right. Sure the bank won’t make as much profit from interest, but they certainly don’t lose money, and they wouldn’t have accrued any extra costs due to the shorter mortgage duration.
May 15th, 2009 at 11:46 AM
Norm,
My bank offered me interest rates sky high compared to what I got. There is little difference in the end.
I don’t think it’s fair when your only option is an agreement that stacks everything against you.
That’s just as good as having no option.
It’s a wonder anything gets done with all the bad “agreements” going around. But yeah, somehow people still agree to them. Isn’t it strange? It defies any reason.
It’s simple in the end.
Again, this is the get-rich laissez faire thinking in practice that said “in theory, the market will self-regulate”.
Just like the United States self-regulated to a crash, right?
It wasn’t just interest rates. It was every time the rate went down, the banks figured a new way to take more from the people.
Yes, we can clearly see in practice people will take the only options available to them and not react with consumer backlash.
But can you blame them?!
Do any of the right wing theorists ever visualize the real world leveraging of the consequences they think act as sentinels to the market?
None of it is practical! It’s a giant cloud of unlikelihood being used to assure everyone that what’s going on now is fair.
We would all be reduced to a society of shut-ins collectively performing acts of solidarity to boycott all these “oh, woops, silly me!” agreements out there.
These ideas of innocuous business agreements assured of mutual benefits by their manifestation are just downright insulting.
When entire markets are colluding to obfuscate every aspect of their true costs, how can you say an agreement is ever made with open eyes?
Just how bad does your only option have to be before it can hardly be considered a fair arrangement? We don’t have a choice and there’s no sense in trying to make it sound like it’s as simple as shopping around.
To preempt: I refuse to be told that home ownership isn’t for me. I’m tired of being made to give up the things that made this country so great because we’re still coming to realize the ransacking going on.
Anyway, look, I am glad to have my home and I’ll do the unthinkable and live in it. I knew the score.
I also know the future score and I know that if things ever get so bad, it’ll be me and a lot of other people. I know that greed doesn’t always win out in the long term.
You don’t see me on here saying people need everything taken away from them. Ask me if I’d use a realtor to sell my house or go FSBO – I dare ya.
Ask me if I’d procure the services of lawyers again. Ask me if I’m going to get professionals to jobs when needed.
I want people to make money still. I just want them to make money for doing real work and not this opportunistic cr@p going on. All we’re doing is focusing on how to hose each other down and that’s not right by any stretch of the imagination.
What I advocate for is something better, and it also still leaves the banks with a fistful of money.
…Just not two.
May 15th, 2009 at 11:47 AM
Heather,
If a bank lends you money for 5 years at 6%, and two years into the term you want to pay them back, and in the meantime rates have dropped to 4.5%, your change in plans has caused an “extra cost.”
To the best of my knowledge, every lender offers what’s known as an “open mortgage.” You can walk in at any moment of the day and pay the balance in full without incurring any penalty.
What you seem to want is the lower long term rate without the long term commitment. Again, the fully loaded package at the base price.
Alex,
You know that you had options that provided no pay-out. You just didn’t want to pay for it. Right?
As for the US, the “banks” are paying a heavy price for their recklessness. People are walking away from their homes every day and leaving the bank to deal with it. Most of them are moving to better houses that they’ll rent for half the cost of their old mortgage payment. This is the big wheel coming around. It’s the free market correcting what went terribly wrong and most of those who benefited from it are now paying a price.
Don’t think for a moment that our big wheel won’t come around.
May 15th, 2009 at 11:50 AM
Norm,
Oddly, I don’t see the banks needing a crash – maybe bordering on deserving
But really, it doesn’t help anyone to assume that this cycle is anything but harmful to everyone involved. Including the greedy banks – rarrar.
I can’t understand why an economy can’t target a balance, without having to have anybody at anyone’s throat.
I guess in Canada people could threaten to walk away from their mortgage if it got bad. Ask for better terms from the bank – it is a shared interest after all.
There’s a considerable amount of wealth being sucked into real estate – debt wealth. That means money we as a country are borrowing to pay out to the lucky few.
It would explain for the rest of the economy coming to such difficult times.
But again, I don’t see why the people have to endure a reduction in quality of life, and why the banks have to get shipwrecked. I guess that’s just the problem these days – everyone wants their wealth and status.
May 15th, 2009 at 11:50 AM
Norm,
Sorry for the double posting, but I just re-read a part of what you said and it hit me funny. Consolidate if you wish:
“You know that you had options that provided no pay-out. You just didn’t want to pay for it. Right?”
How can that NOT be boiled down to me having to pay extra to pay back whenever I want? I don’t understand that – another non-service. I’m paying more to pay less by paying sooner?
Yeah, that’s a gouge. No thinking around that.
It’s a great idea for makin’ bags full of money! But holy cow, it’s based on nothing?!
May 15th, 2009 at 11:52 AM
Alex,
On your first point. In theory, a free market is supposed to reward excellence and do just the opposite for those who make foolish and reckless decisions. Though it has it’s problems, much of the progress that has been made can be credited to free markets. It works to make things better. If people are not rewarded for hard work, they tend not to work very hard.
On your second point. I suppose your lender would see it just the opposite. In other words, this is a fair rate, but we’re willing to sell it cheaper if we have the benefit of knowing our money is safe with you for a longer period of time. Given that mortgage terms rarely exceed 5 years, you’d think that people could plan to avoid payouts. I realize that circumstances change but if you can see your needs changing next year, you don’t sign a five year mortgage.
If I owned a bank, I would put all of the money into my ING account and earn 4% guaranteed without having to lend anyone anything.
Seems like at lot of hoops to jump through for a fairly marginal return. I know banks make a fortune but I’m sure not complaining about my mortgage rates.
May 15th, 2009 at 11:52 AM
Norm,
Those are some interesting points, I more understand where you’re coming from. I suppose it’s situational. I wasn’t implying a person should be allowed to enter into a low interest mortgage while intentionally ripping off the bank. I of course can’t believe how stubborn the banks are being about lowering their interest rates to that of the Bank of Canada’s. I think they’re trying to compensate for their stupid mistakes at the expense of home buyers.
May 15th, 2009 at 11:52 AM
Heather,
WOW You need to do some research….The Bank of canada has a TARGET rate, which means the rate they lend out money at. This has NOTHING to do with what banks in return offer money to you at. The Bank Of canada set’s the prime rate which is currenty 5.25%. That is for variable rate mortgages. Right now you can get up to .65% off this rate with a few lenders but you are tied into a 5 year term. In regina here I took a 1 yr closed Variable rate term on my lot at the lake at prime – .50% and I had the choice from 1-5 years at the same rate. Why would you lock into longer for NO benefit. Now Every lender offers open mortgages with NO payout penalties around prime rate to prime – .25% i’ve seen. If you choose to take a closed term you can still pay up to 15% of your original mortgage amount per year for the entire term without penalty. Now put yourself into the bank’s shoes. Where do you think the money comes from to fund your mortgage? From Term Deposits from it’s clients. So do you think POSSIBLY that banks lend out money at an assumption you will stay till the end of the term? Now if you want out early it’s a large inconvenience. I can think of one credit union off the top of my head thats smaller and had this problem. Nokomis credit union. If everyone has a pile of money sitting around and pays out their mortgage early they have to find the money to pay you out. If term deposits are low they then have to seek money out from other sources IE: Larger Credit unions to pay the consumer out. Now all this inconvenience is caused by your actions. SO YES the bank should charge you 3 months intrest. When I paid off my mortgage early last year I had to pay it…nope I didnt like it but I’ll tell you what the $1500 penalty I paid after 3 months was no worries now that I’m paying them 0 each month on my house. Pretty good deal if you ask me.
May 15th, 2009 at 11:55 AM
Our petition to City Council regarding condo conversions is ready to print and distribute.
We have also prepared a petition to the provincial government to reinstate rent control, which will be presented either to the newly formed Provincial Task Force on Housing Affordability or sent to Premier Brad Wall. On that note, the new task force is seeking public input. They seem to care what we think! Please visit http://www.socialservices.gov.sk.ca/housing-task-force to submit your comments to them online. Every voice counts!
See the attached PDF documents to print out the petitions.
The petitions are also available in .doc (Microsoft Word) format here:
http://www.groovity.ca/petitions
HELP US take action! This is an important step toward putting a stop to converting condos in Saskatoon and to the evictions of tenants who will not be able to find a home in a city with a 0% vacancy rate.
THE TIME FOR ACTION IS NOW – please pass this message on to your friends, family and colleagues. Also consider bringing the petition to those in your neighborhood (door-to-door) this weekend.
IMPORTANT: Signatures must be original and cannot be photocopied, scanned, faxed or reproduced in any way.
WHAT TO DO WITH THE PETITIONS:
A. Bring your petitions to City Hall on Monday, April 7th between 5:00 and 5:45 pm. Someone will wait outside the building to collect the petitions.
B. There are people willing to pick up your petition if you cannot bring it to City Hall on Monday. Please reply to this email by SUNDAY April 6th (afternoon if possible) to let us know that you need your petition picked up.
C. Drop off your signed petitions at the office of David Forbes, MLA before 5:00 pm on Monday April 7th:
Constituency Office
904D 22nd Street West
D. You can also bring petitions into the April 7th City Council Meeting (6:00 pm), which is when 9 of the condo applications will be addressed. Please arrive early so that we can add your signatures to our total count.
Please bring your petition along if you are participating in the Station 20 Community Walk on March 5th (10:00 am, 20th Street and Ave. M South) to have people sign it during the walk.
If you have any questions please feel free to call me at 384-5504 or reply to this email.
Thanks and take care,
Shannon Christensen
May 15th, 2009 at 11:57 AM
Shannon Christensen
I wish these people would quit whinning about conversions and rent control. We are a progressive province now with a strong economy and people want to see us move forward. Move to a small town if you want rent controls please.
May 15th, 2009 at 11:58 AM
Zig,
Progressive doesn’t mean no rent controls.
Your exclusionary tone shows that you couldn’t care less what happened to anyone. So long as they stay out of the way of profits, who cares, right?
May 15th, 2009 at 11:58 AM
Zig,
“We are a progressive province now with a strong economy and people want to see us move forward”
*puke* What kind of propaganda are you trying to shove down people’s throats? Who are these “people”? Where is “forward”?