Thanks for clarifying. I completely agree on your “sub-prime” comment. If interest rates don’t remain low for a fairly long period of time there will definitely be some fall out.

Just to clarify, I know of people in Calgary doing this. now they intend to do this in other cities too but none of them have mentioned Sask…yet.

I was almost thinking of a similiar situation about what you said about the broker and his 80% thing. As somebody has already mentioned, that ends up creating a subprime scenario without it officially being subprime. they lock in now in these super low rates but 5 years from now “look out!”.

Jason, low interest rates haven’t had the effect gov’t have wanted? Lol. Based on what. It’s been what, two or three months of low interest rates, and as far as I can tell, things are looking at lot rosier than people were thinking back at Christmas. A freefall of sorts has been stopped, or slowed substantially. That probably has nothing to do with low interest rates, probably your normal cyclical business cycle, but if anything, gov’t's have to be pretty pleased with the past few months on all fronts, equity markets, retail sales etc.

I’m with Nix on the inflation. I think it’s going to run at a decent clip over the next 1-5 years, wiping out a lot of debt, but leaving hard assets like houses poised to follow the inflation up as wages catch up down the road.

As far as investment buyers out there, I’m still doing it, and yes, various banks will give you money to buy five to ten houses on an average salary if the places cash flow themselves. Why wouldn’t they? They appraise them and look at market rent. It’s far safer then giving someone 200,000 to open a restaurant for god’s sake. That’s a huge gamble. A cash flowing house, not so much. I make a very average salary, but provided I can come up with a downpayment, banks will happily let me buy and rent property.

All at the time when deflation is the real story to worry about. Too many job losses,too many companies close to bankruptcy or being bailed out. As much as BofC has cut rates to near 0 and pumped money into the economy are they winning the battle against deflation? I don’t think so at the moment. We are still in a deflationary spiral.

Will rates go up in the future. I think they should if inflation starts up, but I really believe government will interfere just like they always do.

Interesting discussion. We are also looking at building and location is the most important factor for us. We have been able to “bargain” into the price finishing part of the basement and finishing the garage, in addition we were able to get a bigger, better lot this past month for the same price that we had previously negotiated for a smaller lot. So, builders are moving somewhat.

As to the discussion about moving out of an older established area – there are definately things we will miss (biking to the swimming pool, library with our kids, a massive backyard). Our family has grown and we “needed” a bigger home. We have renovated our first home and weren’t interested in doing that level of work again. If we could have found a character home in the same price range in an established area that didn’t need a tonne of work – we probably would have taken it – but after a year of looking we have decided to build.

We have friends who built during the height of the boom and boy do I feel sorry for them.

On another note: Interesting article about dealing with global economic issues:

Does it really matter what the economy does if you have budgetted and planned well?

http://gailvazoxlade.com/blog/

Quantitative easing is only just getting stated. You haven’t seen anything yet. Central banks will hold long rates a low as possible for as long as possible. The official 300 billion of QE the Fed announced is only what they have admitted to, in all likely hood they have taken part in QE for some time. My guess is that as rates begin to rise the Fed will double down and really raise the anti. Only time will tell. The long term goal of this is of course inflation.

Inflation will wipe out many of the problems mentioned in previous posts. Debt levels, and unfunded liabilities. All you have to do is understate official inflation and let real inflation wipe away the problems. Inflation is the goal and central banks will not stop until they succeed.

Nix

Perhaps you’ve seen this already (Zero Hedge):

http://tinyurl.com/ra8jk4

Quote :”The rush for near duration is accelerating as investors are running away from the 10 year like a herd of rabid buffaloes. If this continues it will destroy any plans for providing cheap 30 year mortgages.”

And let’s extend this to other areas… Credit card companies don’t WANT to raise interest rates (despite higher delinquency rates)… Governments don’t WANT to raise CPP/EI premiums (despite the portfolios seeing huge declines and more people drawing/retiring)… Cities don’t WANT to raise property taxes (despite having huge deficits, infrastructure and other capital costs).

I think it’s time to be realistic, though: lower interest rates have not generated the kind of economic recovery governments were hoping for, and the clock is ticking.

Myself, having a prime location is key, first and foremost. The initial difference for a more desirable property (ie: cul-de-sac, backing green space) is always offset in the long-run in the form of higher residuals (being highly sought after, they tend to hold their values more).

You’re definitely correct that there is an active willingness to “deal”, and I think incentives on upgrades, basement development and landscaping are certainly worth consideration because they can be financed in the initial purchase and will probably cost less than individually contracting them down the road. The general impression I got from builders is that this level of development and construction is now “normal”, and something they all readily welcome (logistically last year must have been an absolute nightmare!)

The US govt recently started buying the bonds *from themselves* effectively loaning themselves money. This is what ‘quantitative easing’ means when you hear it on the news, and this is the “Ben’s Bid” move that was referenced in the above article. The problem is that a) it’s a sham, b) it’s not working, and c) it is in fact having the opposite effect of what they want.

I regularly read Denninger’s site as well as Chris Martenson (author of The Crash Course). Denninger is very short-term, market focused; Martenson is very much into analyzing long term patterns, trying to give people time to react to what he sees coming societally. And both of them (as well as several others I poke in on occasionally) are saying that the patterns are pointing the same way: the fecal excrement has hit the rotating air movement device, or is poised to do so in a much shorter period than people are expecting.

Governments don’t WANT to raise interests rates. They don’t INTEND to raise interest rates. But if they can’t raise operating capital to fund their expenditures, then they will have NO CHOICE but to raise interest rates, despite the effects that they know this will have on people.

As Denninger said: it’s either ‘raise rates’, or ‘suffer an economic meltdown and then raise rates’. The current path of deficit spending is unsustainable; it always has been in the long term, but it is now becoming so in the short (and very short) term as well.

NOTE: Denninger and Martenson are both looking at US-centric data. I honestly believe that Canada is in better economic shape than the US in many ways, but the fact is that our lifestyles are similar (compared to, say, someone from Venezuela or India or Ethiopia) and they are our largest trading partner. We are joined to them whether we like it or not.

Who did you find was offering the better deals/lots? We’ve found some pretty good prices on new builds in the 360k range for 1700+ on a decent lot (not main, not cookie cutter, not tiny, but not a cul de sac or one of the bigger lots, either) by the biggest builder out here. The same model was recently on the mls for 420k (no upgrades) and 460k (several upgrades but not quite as many as they thought they had done ). Both were built in the last year to year and a half, so priced during the boom. Neither on on the market any more – whether or not they sold, I don’t know.

We’ve been quoted 6-8 months to build, but we commented on that sounding long – maybe more based on last year when building starts weren’t down 80%!

We’ve also found some builders willing to throw in upgrades (flooring, landscaping, deck, etc) and others, like a major builder out here, not doing so. Admittedly, I’m enticed more buy the builders willing to toss in a few extras as it seems they are far more realistic about the current market and are working harder for the sale. Also, of course, it’s less for us to pay for out of pocket. Few have been willing to budge on price but most, at least the bigger builders, have come down significantly from last year.

I think raising interest rates by very much in the next couple of years probably just isn’t an option. As Norm points out, most people are pretty much maxed out for what they can borrow. Not only that, but even small increases in interest rates will translate to a big change in your monthly payment when rates are this low, vs. when rates have been higher (e.g., going from 3% to 4% has a bigger impact [33% higher interest payment] than going from 12% to 13% [8.3% greater interest payment]) We’ve also been allowed to borrow a lot more principal than we could have done at higher rates.

Raising interest rates would just be pushing the ‘reset’ button on the whole lending meltdown. I think the policy makers’ hands might be tied for a while yet; perhaps that’s part of the reason we saw that unprecedented pledge not to raise rates until next year; they know they can’t. I’m betting any increases we see in rates will be small and gradual.

So, if the governments can’t sell all their bonds, what’s next? Do they start printing money?

“Saskatchewan’s tallest building can’t get off the ground. The assisted-living component of the proposed 95-metre tall complex in the police station parking lot — which was to break ground this summer — is at least $10-million over budget, putting the project at that location in jeopardy. ‘We’re in a holding pattern,” said Tony Argento, CEO of Calgary developer Stoneset Equities, which manages the project.’ ”

http://www.thestarphoenix.com/Life/Tower+plan+jeopardy/1619626/story.html

Furthermore, I may have been optimistic on my 18-month timeline for rising interest rates.

Fact: The US Govt spends more than it takes in via taxes. Lately, it has spent a LOT more than it takes in, with all the ‘bailouts’.

Fact: To cover this deficit spending, the US govt sell bonds which it promises to repay at a future date.

Fact: Since the US govt has been deficit spending for a long time, there are a lot of these bonds out there. They are primarily held by foreign central banks, e.g. China, Japan, Saudi Arabia.

Fact: Bond rates aren’t very appealing right now, because interest rates are so low, so a lot of people/countries have stopped buying them.

Now this new information — foreign banks aren’t just ‘not buying’, they are actively *selling* the bonds they own, competing directly with the US govt and causing even more shortfall in revenues. They could be doing this to raise their own capital, or because they don’t believe in the long-term prospects of the US govt, or even as an act of financial terrorism… but the motivations aren’t as important as the fact that it’s happening.

The only way the US Govt can combat this competition (and get the revenue they need) is to raise the interest rates on the new bonds to make them more appealing. The other guys can’t do that because their bonds were purchased at a given rate, so people will buy your bonds in preference.

http://market-ticker.denninger.net/archives/1057-CBs-And-Other-Real-Money-Had-Enough.html

The problem with doing this is, of course, that raising the bond rate raises the core interest rate, which then in turn raises other rates, and things start going up again. From the above article:

“If Foreign Central Banks are selling into Ben’s bid then the game is literally weeks or even days away from being over. [...] Avoiding the higher interest rate outcome no longer appears to be possible [...] We can choose between significantly higher interest rates, or an economic collapse *along with* significantly higher interest rates.”

Scary thoughts.

You mention that you personally know people doing this. They are actually buying Saskatoon real estate right now for investment purposes? I don’t see a lot of that going on and it’s been some time since we’ve had any volume of inquiries from people looking for revenue property.

BUT, I’ll tell you what I find a little disconcerting. I was with a mortgage broker the other day and I asked, “what percentage of the deals that you are processing right now, and over the past couple of months are spending enough money on a house to take them pretty close to their maximum allowable amount?

He says, “80 percent.”

It doesn’t take a rocket scientist to understand that this has the potential to be a big problem in 3-5 years.

This scares the heck out of me. People are borrowing like crazy from guys like this and i personally know people doing this. I am not saying they will all end up in foreclosure but it sure adds to the risk side of things.

The lush, ancient and extensive vegetation has been exchanged for significantly less landscaping and vast dirt plans (I’m on the fence on whether I prefer blowing dirt and tumbleweed to two additional seasons of seeds and leafs; the dirt and tumbleweed do to tend to take care of themselves eventually, though).

Non-existent parking, high-traffic areas and badly maintained streets give way to wide, sweeping lanes with hassle-free parking (although in typical Saskatchewan fashion, no one actually has room in their garages to park here). Pets? No more 24×7 yapping dogs or households with upwards of 40 cats. And let’s not forget the bane of these older neighborhoods: pigeons, aka: flying rats. On the other hand, we may see a bumper crop of gophers this year.

Student littering and garbage is on-par with developers and trades, although it seems flyers are a nuisance anywhere. Lockboxes are just as effective as door-to-door mail delivery, with the added advantage that they offer a convenient mailbox. That and mail is still delivered even when your sidewalk is covered in 3 feet of snow.

One of the most noticeable changes has been the reduction in the audible noise level. Aside from the odd ongoing construction project, that is. There’s something to be said for peace and quiet. The close proximity of various mini-malls and big box outlets are actually quite convenient – offering a wide variety of essential products and services; nothing beats being able to avoid downtown, any of the main arteries or bridges during rush-hour traffic, either.

“Norm, are you accusing character homes of being overpriced, or character home buyers of being foolish with the purse strings around these used-up old relics?”

Lol. If you’re making me pick one I would have to go with the overpriced comment. It all seems a bit on the high side to me.

I would sure prefer something closer to new with all of the cool technology that’s available today in a well built new home, but I do appreciate that there are many reasons that a person might prefer a character home. They call them “character homes” for a reason. I love the landscape out there and I couldn’t imagine living in a new area with puny trees. I probably would be the guy that would appreciate a new house in your area.

Foolish? Heck no! You’d be hard pressed to find an area that has done better than yours over the long term.

Actually, the FSBO property I was referring to up the thread was a post-WWII cookie-cutter type house (nothing special, IMHO). I’d be willing to pay more for a well-loved, nicely landscaped, architecturally unique 110-year old-house than a new one any day.

http://www.bankofcanada.ca/en/review/rev_spring2009.html

BOC changing policy makes me think they know the economy is going to get worse and this is their next solution for the economy.

From the way my CPI MACD chart looks, Saskatoon CPI is trending negatively.

MACD Graph at: http://relistings.drakeventure.com/relistings

Norm, are you accusing character homes of being overpriced, or character home buyers of being foolish with the purse strings around these used-up old relics? I couldn’t tell

http://tinyurl.com/pvdjbl

Quote: “While upward pressure on the Consumer Price Index (CPI) came primarily from food, the slowdown was due mainly to price declines for energy and reduced upward pressure from non-energy shelter components. Excluding food, the CPI fell 1.1% in the 12 months to April. Excluding energy, the CPI rose 2.4% over the same period.”

Energy costs have shown an uptick this month, but that looks pretty darned speculative to me. Let’s see what the Asian region is doing first. Japan’s economy is looking quite poor, China’s less so.

Wholesale trade numbers are out today too:

http://tinyurl.com/qxlhrt

“In March, three out of four western provinces reported lower sales. Saskatchewan registered the largest decrease (-7.4%), while Alberta fell 3.5%. In both provinces, lower sales in the “other products” and machinery and electronic equipment sectors were behind most of the declines in March.”