There was an interesting report by Merrill Lynch that Canada could be facing a similar real estate/financial crash that the U.S is facing right now.  The rationale being that Canadians have turned from being savers to spenders with an increasing net household deficit.  While I agree that the real estate market in Canada is due for a healthy correction, will the correction lead to significant foreclosures, thus resulting in our banking system crashing?

What had me confused about the sheer number of people declaring foreclosure in the U.S, was WHY?  In a nutshell, the reason is that people gave into the American Dream of owning a house without having the ability to afford it.  The teaser mortgage rates that they were given would temporarily allow them to make their payments.  While borrowers knew that eventually the mortgages rates (thus payments) would go higher, most expected that real estate would keep increasing, thus refinancing when they needed to.

What happened?  The real estate market started getting more houses for sale than there were buyers, thus decreasing values.  This lead to a chain reaction of borrowers not being able to refinance at the higher predicted price which in turn resulted in foreclosures due to the inability to make the mortgage payments.  With a high number of foreclosures, the lenders now have a bunch of non performing debt on their books with few buyers out there.  If you have enough upside down mortgages on the books, it can turn ugly pretty quick.  This is why the big mortgage companies in the U.S are looking for either bankruptcy protection or government help.

So, back to the question at hand, could this real estate crash/foreclosure mess happen in Canada?  I believe that home values can definitely decrease due to supply/demand factors, but I don’t believe that many Canadians depend on their home values or refinancing to make their next payment.  In addition, there aren’t that many “teaser/subprime” mortgage products offered to Canadians.

What do you think?  Do you think Canada could face what the U.S real estate/financial market is going through now?

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Personally I can’t see us going the route that the States. Thankfully (for lack of a better word) they have blazed the trail for us and allowed us to place some measures into place.
By oct 15 all mortgage lending will be max 95% with max 35yrs. Most banks are starting this trend as early as Oct 1 (RBC for one)
Will we see a market correction…..yes.
Will some people be hurt similar to the States….yes
But, thanks to CMHC for having a somewhat “governing body” behind the banks lending we should escape most of the issues facing the States.
Sitting here now in Florida I can see LOTS of foreclosure and auction signs. I’ve even read in the local papers about “house raffles”. Owners are selling tickets on their houses in hopes to raise enough capital to dump their home and avoid bankruptcy. $100 tickets on a $250,000 home…..I sure hope we don’t see this in Canada.

I was discussing this report with my boss and he wondered why it is we are hanging on every word of a company that obviously has no way to forecast it’s own demise but is ‘able’ to forecast a real estate crash.

It seemed like a reasonable point to me. Looking forward, a friend of mine bought a house five years ago and got a ten year fixed rate mortgage. But assuming he would have got a 5 year mortgage, the rates have crept up from approximately 5.8 percent to 7.4 percent (rough figures from http://www.mississauga4sale.com/rates_1year_5year.jpg).

At 5.8 on 200 000 he was paying $1255 per month, now he’d be paying $1450. A $200 difference, which is not insignificant, but I don’t think enough to cause a crash.

But, what do I know (as a soon to be buyer, I’d like a crash).

I’ll copy what I wrote over at Canadian Capitalist for anyone interested:

“I don’t think we’re going to experience a MELTDOWN, but a rational person has to expect some stagnancy in RE prices across Canada when you look at where they’ve come in the past 5-7 years.

If the historical average rise of RE prices in Canada is say 4%, then we’ve been outpacing that considerably over the past half decade.

Now have the fundamentals of the Canadian economy changed so drastically that we’re now in a “new period” of RE growth and 4% will cease to be the norm?

I don’t think so and while a drop of 10-12% would put us back to more attractive RE values across the country accelerated trends tend to go up too far and back too far. In Ontario I expect prices to decline just on the basis of the 41k layoffs in the manufacturing sector that are coming into effect Nov 1.”

Get a grip, I’m a Realtor on the front lines in Victoria. I see the disaster that is slowly unfolding. Don’t fool yourself into believing that Canadian 40 years ams aren’t the American version of subprime. Rampant overbuilding, greedy speculators, and buyers that just ‘need to get in right now’. The writing is on the wall people.

I also do not believe that Canada would be unaffected by the US financial crisis. Even if your real estate market had no gray areas for manipulations it is hard for me to believe that Canadian Banks do not have any exposure to the toxic US bonds that caused so many financial institutions in the States to fail.

That’s what makes me hesitant in purchasing TD..

i don’t think we will see the disastrous problem as the states here in Canada. There is one thing that reports do not take into account is a factor in determining peoples ability to pay debt, that is the “underground” economy. Most Canadians, when push turns into shove, will find a way to do odd jobs for cash to support themselves and their families. my 2 cents

I think that in Canada this will be a highly localized affair. Certain areas of the country have been built into a bubble (BC, AB, SK) and you will see the hardest correction there. Other areas, such as the Maritimes (NL being an exception due to Oil and Gas) and Quebec have generally been more conservative and will not be impacted as hard. Ontario will be hit and miss due to layoffs and people moving around to find new jobs.

Again, when speaking about Canada, you have to realize that each part of the country has it’s own drivers and not all are created equal.

I see the real estate market taking a hit, but not as severe as the US market.

A lot of these problems also stem from interest-only mortgages. A lot of people overbid houses because they were paying interest only. They bought on speculation that the bubble would continue to grow, and now that its not they’ve got all kinds of problems, and have to pay out their car lease, pay for the “no payments for 24 months” furniture guys and basically the credit crunch is catching up to them.

We are in the process of renewing our mortgage. Our bank requires an appraisal for the HELOC, and they actually put the appraisal on the low side. (my renovated house was appraised for only $10k more than the fixer-upper down the street is selling for)

P.S. I’d love to see if my home town (London, On) can maintain its housing bubble. Tonnes of 400-500k homes built in the last 3-4 years, with next to no economic growth to support them.

@Chuck

You’re from London, eh? I grew up just south of there (St. Thomas) and I was thinking of maybe picking up a bargain basement price house there in the next 2-3 years. They keep on building sub-divisions even AFTER over 3k job cuts were announced. Sounds like a Phoenix, AZ problem to me. It’s very similar to what happened to the Chatham area in the 1990s. You can still get a heck of a deal on land there, if you happen to be able to find a job.

I wonder if the argument for/against dropping money on your mortgage vs. your RRSP will change now that people need equity in their homes more than ever?

Isn’t the worst that can happen in Canada being that your home will become worth less than the principle on your mortgage?

Funnily, I made a post on the same topic but I couldn’t find the Merrill Lynch report online. Reading the report, I think that the authors draw conclusions based on rather questionable assumptions. Is a real estate slowdown or decline likely? Absolutely. A crash? Anything’s possible but the report isn’t making a convincing case for one.

I don’t know if home ownership is really part of the “Canadian Dream”, though I’m not really certain if we even have such a thing :)

I think that AndyBuck really nails it: you have to realize that each part of the country has it’s own drivers and not all are created equal.

There were a bunch of homes built last year in Edmonton. Lots of homes, all priced to sell in the 300k+ region. Problem is, that’s too expensive and consequently, they’re not selling. I don’t know if the the bank is really “eating this”. The prospectors are likely the investors losing money on the deal.

Winnipeg definitely has a bunch of over-priced homes popping up. But I don’t see the 20-somethings swooping in to buy these homes.

Vancouver definitely has some issues, with lots of interest-only loans and “over-priced” housing. But Vancouver (and Toronto) are really their own beasts. Like New York and some other “international cities”, I don’t expect their prices to follow some form of “market reason”.

And the banks who issue most of the mortgages still seem to be making money. I definitely think we’re in line for a correction, there will be some drops in home prices, and maybe a few foreclosures. But a slowdown is most of what I expect.

(Give it a few more years and watch for retiring baby boomers to actually help family house prices go down as they “down-size”. I’m not convinced, that baby boomers are going to “retiring on-time”.)

I see a small real estate correction happening, but nowhere close to what it happening in the U.S. I believe this for the simple reason and that Canadians and their financial institutions “in general” are more conservative than our American counterparts. We’re just not as highly leveraged as them so we can endure a bit more of a hit to the pocketbook. However, we should prepare for the repercussions of the U.S. economy screeching to a halt.

Do you think that the reason that the US was so eager to borrow so much from the bank is partly due to the fact that one can claim against the mtg interest? Since in Canada, we can’t do that, I think it causes us to be more conservative in our borrowing habits.

I would like to hear MDJ’s views on what we as Canadians should watch out for in the event of the US economy crash, just as a hypothetical study.

Just thought those of you interested in this topic should definitely take a look at http://www.greaterfool.ca . Great posts by Garth Turner, author and renegade Liberal politician, on the bursting real estate bubble in Canada.

Hey all – good topic for discussion.

I’m sure you’re all familiar with the ideas of “Self Fulfilling Prophecy”. Unfortunately, for the past two or three years, at least, there was a perception on the market that real estate never goes down. Whoever told people that forgot to mention the words “in the long run”.

Likewise, the media has been telling us for months that we’re “in a recession” or nearing one, etc…and the new gut feeling out there is that the sky is falling.

The reality is that neither is true. Real estate is not a guaranteed way to get rich (despite the best efforts of the loser real estate seminar guys to convince people that it is) and it’s not deserving of a crash (here in Canada).

40 year amortizations were not super risky because they were only offered to people with great credit as a stepping stone into the housing market. Zero down is far riskier, of course – IN THE SHORT TERM.

If the Garth Turner’s of the world and all the other Chicken Littles make enough noise and enough people notice it, then we will potentially have an over-correction on the downside and you’ll see some suffering. But that’s just what it would be – an over-correction. I think everyone needs to take a deep breath and relax.

We started going down the sub-prime road a bit in the last couple of years – but thankfully the States was our canary in the mine…they blew up before we could get to that point.

To Gates VP – those properties in Edmonton are selling…sales have been quite good, in fact. There was more construction than needed so it’s taking awhile to get through all the inventory, but the reality is that Edmonton is still a destination for people who are looking for good paying jobs and a relatively low cost of living. In fact, according to Benjamin Tal from CIBC, Edmonton is now one of only 2 “buyer’s markets” in the country. We’ve over-corrected and with the supply we have, it’s a good time to be a buyer.

My 2 cents…

I blame Robert Kiyosaki.

I’m a real estate lawyer and one of the differences that I did not realize until recently is that most of the mortgages in the states have no recourse against the borrower personally – that’s why borrowers can just walk away and all the lendor can do is foreclose.

Here, every residential mortgage is a freehold interest mortgage – the lendor can foreclose on the property, go after any funds in an account or both. I think that should make a difference here.

That does make a difference…as does the fact that we can’t deduct interest on a typical principal residence mortgage (Smith Manoeuvres aside). The urge to refinance constantly down there for consumer, rather than investment, reasons, creates more risk because the typical Loan-to-Value would be higher, on average.

I ran through our stats for last year and my average LTV was around 60.4%. Considering all the first-time buyers we work with, and the 100% financing rules that were in place, that’s not bad at all.

The Garth Turners of the world will in no way cause an over correction. That is ridiculous. He and others like him may prompt people to wake up, ask questions, research. As a result people may become more discerning rather than just accepting the spin carefully laid out by self interested government and industry insiders.

re#17-The Garth Turners of the world will in no way cause an over correction. That is ridiculous. He and others like him may prompt people to wake up, ask questions, research. As a result people may become more discerning rather than just accepting the spin carefully laid out by self interested government and industry insiders.

Not a crash but a correction- although a severe one in some parts. Some areas will be hit harder than others but its hard to say “Canada” is going to correct when some areas of the country are going to fare better than others. Just as Manhattan and Chicago have had a correction and Miami and Southern Cal a crash, you’ll probably see mini-versions play themselves out all over Canada in that what happens in Victoria (having been there in Spring, I agree with one of your commentators that it is simply over-built) may not happen in Calgary which may not happen in Toronto etc. etc.

Remember U.S. has mortgage interest deductibility, non-recourse mortgages (I commented on Canadian Capitalist about this today), Fannie and Freddie (CMHC works structurally different), larger pools of mortgages to package etc. which all make bad times worse. Canada, modest as we are, never do great and never do terribly. We are always middling good or bad.

I just hope prices come down from the high prices of today….so I can afford to buy a house, put some money away for retirement and live a little on a middle class income…..I hope they do fall….not saying they will but I hope they do…..

I agree with that a “correction”, will take place here in Canada, but not a crash. Although the U.S. crash will affect our economy, it won’t be to the same degree as our neighbours. Loans will be harder to get now so obviously spending will go down. This is probably good because we can’t run our society on credit for ever. We need to start treating our businesses like our personal finances and try to spend less than we make.
I also think that the housing market will slow down. This should lead to the amount of house “flippers” out there. I’d like to know what percent of our housing market are flippers. Part of our problem is that alot of flippers put a coat of paint over the house, cover up major problems, make it look nice and sell the house for a rediculous amount. Here’s to the days when you can actually get a house inspector again, without being passed up for another guy who didn’t get one.

The correction may have already started.
I review weekly the 2+ bedroom condos available in my neighborhood on the Montreal island and for the last several months I see the inventory up from 59 condos to 74 and a few announcements for reduced price.

The issue is not really as much about real estate pricing for me, it’s more about leverage and debt.

Do the people have the money to pay their mortgage? I think in general yes.

Do people have low equity positions in their homes, or have gotten into the risky Smith Man? Possibly. If this type of situation is widespread, then we have the makings of a meltdown.

“Patch” makes an excellent point. In the US, with zero down and the ability to withdraw increases in housing value via HELOCs, why would anyone stick with a leveraged house that loses value? If they walk away all they get is bad credit, and they can keep all the money they took out with their HELOC abuse. I tend to think canadians on average have more of their own money in the deal, and the ability of the bank to go after other assest would make it harder for people to just walk away and let the bank eat the losses.

As is the case in Florida and other places, condos have also reacted differently than houses, as they were the most overbuilt. I think that may be an issue in Toronto (reasonably close to where I live), but on the other hand, I don’t live in a condo.

As home buyers looking for our “next” home in a Canadian town with notably high prices, we sure to WISH that we could predict the economy and real estate of times to come. An average 3 bedroom home in reasonable condition seems to run at about 300,000-330,000.
We have found one at 306,000.00 and wondering whether to “pounce” or wait to see what will happen over the next few months. On one hand, we don’t want to be the ones who end up over-stretched and struggling if the economy declines. On the other hand, we don’t want to look back and know that we could have got a great house at a good cost. Does anyone know of any other good websites on this topic? And, what is the consensus–buy now or wait it out?

Hey Alberta Mortgage Broker;

Thank you for the update on Alberta. I moved to KC in January, but do have designs on going back. However, the low Cost of Living thing is a little tough to believe.

My $1200 Millwoods apartment (with great location) had about 900 sq ft & 1.5 bathrooms. My $1200 KC apartment (in top-notch location) has 1100 sq ft, and in-suite washer/dryer/dishwasher & 2 baths. In Winnipeg, $1200 probably gets you any apartment you want.

Don’t get me wrong, for high-end professionals, the extra salary will more than justify the extra cost of living. But if you’re making 35k / year working Convergys in Edmonton you’d get a lot more mileage making 30k / year working Convergys in Winnipeg.

(and yes YMMV :)

I don’t believe that all Canadian RE is due for a crash, but there are a number of cities (Vancouver most notably) that will likely see similar (or worse!) declines to some cities in the US that are making headline news. Everyone keeps bringing up sub-prime loans as being the cause of the crash in the US but the truth is, sub-prime losses are a result of prices falling from inflated levels to normal levels. The problem for all loan losses (even to “normal” people) is that the loan amount exceeds the fundamental value of the collateral (the house).

We’re in a global real estate bust. Why should Canada be any different?

What ultimately (once you remove the emotional factors) drives home prices is rent-price ratio – the difference between the price of the house and the amount of rent tenants would pay to live in it (i.e. a $300k house that rents for $1000/mth or $12k/yr would have a ratio of 4%).

In the US, the ratio averaged 5.29% from 1960 to 1995. From 1995-2006 the ratio dropped to 3.5%, a historical low. There are plenty of examples in cities in Canada (Vancouver, Calgary, etc.) where the ratio is ~0.5%.

I’m in a fairly depressed market (Windsor, ON) that hasn’t seen any real RE increases over the past 5 years since we purchased our home. The rent-price ratio for our home is approx. 9%. Check your local area & compare.

Gates VP:

All good points. Renting isn’t something I factored into my posts, but glad you brought it up

About a year ago rents had skyrocketed in Edmonton (right near the peak of the market and very low inventories). Makes sense, that, if you can’t buy a place, rents will also get tighter.

Around that same time the folks on the left were clamoring for rent controls and more subsidized housing. Thank goodness it never went through. The market, overbuilt, responded and the natural reaction is going to be for rents to come back down to normal. Lots of inventory means speculators who were hoping to flip condos for a quick buck will have to rent them out. That will increase rental availability (supply up) and rents will come down. I agree 100% with the poster on here about flips – the speculators really are the cause of most of the problems. TV Shows like “flip this house” don’t help.

Interesting to note how the City of Edmonton’s affordable housing project has had very few applicants for it. (Trying to find a link to news on this, but can’t).

Guelph Mom- If the house you are looking at ticks most of your boxes, suits you and your family for the next few years, and is within reason for your budget you very well may miss out on a great opportunity if you do not snap it up now. I would buy it, enjoy it, and not look back. In the long run having a home that works for you and your family is more important than *maybe* getting a slightly better deal as the market corrects.

I’m bracing for the comments of those that disagree!

Golden Opportunity, I don’t think you’re going to have too many people going against you on that. What’s the point of getting a good deal if you end up unhappy with your purchase?

One of the things that people don’t seem to allow for is that the cost of real estate is NOT totally market (demand) driven. This is true for the re-sale market, but the “bottom-line” cost of a new house is a function of building costs, not demand. If there is no demand, the houses simply don’t get built. The price doesn’t keep dropping like it has in the states, where people are giving re-sale houses away to stop their day-to-day financial bleeding.

Here in Saskatoon, we have seen a tremendous surge in the market over the last two years. The Merrill Lynch report said our houses were over-priced by 50%. The author of this report is probably basing their assumptions on partial numbers which showed house prices increasing in the last year by 110%, and not the whole picture. The reason that house prices in Saskatchewan have increased so dramatically is because they had been basically flat for 15 years. When the rest of Canada woke up and realized that you could by an average 3-bedroom house in Saskatoon for $135,000, and we have tons of good jobs going unfilled, people outside the province (half of whom grew up here anyway) realized they could sell their $600,000 monsters and buy a house here for cash with no mortgage and still have a $100,000 in the bank and a great job – and housing demand skyrocketed along with the prices.

So even with increases of 85% the prices are still low compared to most major centres in Canada. How ML can suggest that our houses are over-priced is beyond me. As a manager in the construction industry, our new homes are selling roughly for the same prices as resale houses – not at some big premium, because that is what it costs to build them. How can these be overpriced?

The number of houses on our MLS has gone up dramatically. I believe that much of this is due to sellers (many pushed by real estate agents looking for listings) who list their homes for hail Mary prices in the red hot market we’ve had. They’re not really interested in selling, but if they can get THAT amount of money for it then they will. Well, those houses aren’t selling and sit on the market and make it appear to be stale. Some of those sellers who listed at a hail Mary price in case someone came along and took it have dropped their price to something closer to an actually selling price, further giving the impression that the market is stale. But interestingly enough, the average SELLING price (not the listing price) has actually increased between January and August. So, with lots of houses listed but not really for sale, and many not selling because they are ridiculously priced, many buyers are all sitting on the fence and waiting… and waiting… hoping that the price will drop. The recent economic news in the states just makes them more anxious to do nothing, so they wait more and the market appears to be slowing more… but it really is just an appearance.

I think this is just a plug in the pipe, and the fundamental pressures that drive the market are sound. All of a sudden the flow will start again and when it does, all those buyers who have been waiting will start to panic and the pendulum will swing back the other way again.

Financial disasters aside, unless the population actually starts shrinking the demand for housing will be there, the cost to build it will not drop significantly, and ultimately the cost for re-sale houses will remain stable.

I’ve heard that the market is pricing in at least a half point cut in the lending rate in the US and that commentary suggests that Canada will follow suit. I believe that this will be somewhat temporary as the US will need to print more money to deal with their ballooning deficit (don’t forget they are still waging an expensive and unpopular war). That will lead to inflation which will likely result in increasing interest rates.

If what I’ve read is really happening in Canada (no more discounts on prime rate mortgages) then the housing affordability is going to be tougher – unless the prices come down.

My prediction is that in certain areas of the country (where unemployment is low) the prices of houses will fare better than areas where unemployment is high – regardless of the run up of the housing prices. I think that where mortgage rates are headed and regional employment will be be the most significant factors to housing prices.

This has been helpful – though sometimes hard to make a decision with such a variance in speculations about the economy and the real-estate market. Frequent mention on the radio about the worry over a possible recession. Would not want to buy our dream home only to hit a recession next year and not be able to afford the mortgage (due to possible surge in gas prices, grocery costs, etc). Anyone predicting a rise in mortgage rates?

Guelph Mom:

On the contrary…rates going up would slow the economy down even more than it already is, so the more likely scenario in the next year or so is for rates to decrease.

However, the discounts available on mortgages are getting smaller by the day, so even if the prime rate goes down, mortgage rates are still going up for new mortgages. Only a few months ago friends of ours were able to secure a prime – 0.85% variable rate. The same lender could only give us prime – 0.75% on our cottage last week and that is tough to come by anymore with any of the big banks.

I don’t think but i am sure we will go to 1/2 the price by 2009 2010

Dan – you think we will go 1/2 the price of what by 2009, 2010? I sure hope you don’t mean property values! We took the plunge and put a conditional offer on our dream home…we put our first home up for sale and got close to asking price in 4 days – just waiting for closure. Hopefully, any crashes in the coming year will be relative – so that by buying AND selling when the market is stable will mean that we are on even ground. We also did okay with a mortgage rate. I guess the financial pressures in comin g months could be not only real-estate but also other bills for household and living needs. Funny that our incomes never seem to rise relatively with the cost of living. Anyway, I hope we do okay. I believe in the “self fulfilling profecy” theory. Some people are claiming doom and gloom for Canada – but I would like to think that this will not be the case.

Judging from the current worldwide economic turmoil, there is no question that there will be a real estate crash in Canada. Most significantly in British Columbia and in Ontario and Quebec.
Vancouver will be hardest hit as homes will lose 30 percent of their sellable value. And this is only the beginning. As the prices begin to start dipping, some will sell but most will have a wait and see approach in general..As prices continue a downward spiral, there may be a rush or panic to sell. If there ever is a selloff panic, the average single family house in Vancouver will be roughly 210,000 in 2010.
Sell now not later!

Philip, the Vancouver market is significantly different than the general market in Canada. Sure, maybe Vancouver won’t be so great, but that doesn’t really matter to the rest of us. The crash in the US was helped along significantly by broke banks and 105% mortgages – both of which we don’t have here.

Something else along the lines of location is…well, location! I live in Victoria — an island. There’s only so much land to build on and live on. Scarcity plays a part in pricing here unlike a different location such as Edmonton where they can just keep building and expanding until the cows come home.

I watched some show a couple years ago with a Dutch economist (he was some kind of Tulip Bubble genius), he crunched hundreds of years of RE stats and said that on average RE only rises 1-2% annually over time. Not such a great investment if you don’t happen to buy at the start of a boom/bull.

Scott,
I have lived in Victoria for the past 29 years and this is my third RE cycle. A drive outside the main cities of Vancouver Island will reveal vast wilderness towards the interior of the island. Almost all development here is along the coast. Most of the wilderness is currently tied up in tree farm licenses but with the closing down of the logging industry on the Island, many of the Timber companies are looking at developing their land into subdivisions. This has already begun in communities west and north of Victoria. Any expansion of this will probably be put on hold for now as the market softens but the precedents have already been set and will take off once the market picks up again in 3 to 5 years.

Many people here have purchased homes in the past couple of years with 5% and 10% down. Our market is projected to correct 25 to 30%. With the credit crunch banks will be reluctant to renew mortgages on homes that are worth 20% less then the mortgage and people will have no choice but to walk away. They probably have little if any savings and will be forced to declare bankruptcy.

I bought a 2Bdrm rental house in Victoria in 1990 for $110K and sold it for $179K in 1995 at our last peak.
I had purchased a 16 suite apartment building in Saskatoon in 1995 for $200K and sold it in 1998 for $326K at their last peak.
My plan was to have 2 apartment buildings in each province because the RE cycles are not in sync across the country. Divorce in 1998 took me into bankruptcy but by that time I had 1 apartment building in Port Alberni, 2 in Winnipeg and 1 in Saskatoon, diversifying a RE portfolio by buying in different regions of the country is an excellent hedge against RE cycles which are inevitable. Unfortunately it isn’t much protection from marital breakdown which statistically is almost as inevitable.

Having grown up in Oshawa most of my family and friends are employed by GM or one of the small proxy companies from within the motors industry. I have noticed that now most of the people I know (80% or so) who purchased a home in southern Ontario are now looking for a way out of their mortgage, they have already sold the new mini van and the family cottage they purchased 5 years ago is now listed with MLS; and not selling! The only thing they have to look forward to is the compiling interest at the end of each month. With GM pulling out of Oshawa, the trickle effect it will have on the many smaller companies whom feed GM with parts and services are on the way out as well! This coupled with the detearating global economy will surly have an effect on the real estate market in Ontario!

Almost everyone I know has multiple loans for things they couldn’t afford to purchase outright (boats, home entertainment systems, second vehicle, cottage) as well as the fact they are all still paying off their VISA from last Xmas! Living well beyond their means is common for Ontario folks whom lived with a false sense of job security for the past 20 years. Now they are faced with the real possibility of “long term” unemployment! I mean, how the hell do you “re tool” an entire province?

So… Real estate professionals and the government of Canada can say what they want about the economy or its direction in Canada, what I am seeing are thousands of hard working people forced to cash in their tokens, go back to school and learn something other than threading the same nut on the same bolt as a means to pay for the “Canadian Dream” a house, cottage, snowmobile, bass boat, stocked beer fridge in the basement ect…

This year there will be no jetski under the tree, instead I plan to pay off the Visa and throw a new set of rubber on the van!

This has become a very interesting forum topic and one that has me clenching my teeth wondering what it will all mean….
I don’t think that I am alone when I say that the unknown is not a concept I particularly enjoy — especially this time. With my family to consider I want to make sound choices and do anything that I can to safe-guard us for the future.
When and where will this economic crisis hit the hardest? When will we know when the end is in sight?
What will it mean for the middle-income family not relying on jobs in the automotive industry and not racked with credit card expenses and other uppaid debt (other than mortgage)??
This may sound very simple but I just need to make sense of it all.
Is anyone safe????
I have recently heard the saying “what goes down must go back up”…
will this apply to real-estate?
There has been no really evident change in housing prices here YET, but things are certainly slower than usual. Prices still seem to be holding steady. If we did see a drop in value and selling prices in the new year, when would those prices rise again to what they are today????
Sometimes I really wish I had a crystal ball!

Just to take away any glimmer of hope you may have, “what goes down must go back up” is a COMPLETE fallacy! (It’s not even a Law of Physics!)

Have a look at the Nikkei (Japan) stock market. In 1990 it was at 40,000, it’s all-time high. Like America, credit and housing bubbles (partly) fueled its collapse. Today, nearly 20 years later, it stands at 8,500 — down 80% from the high.

It NEVER went back up.

So things that plummet may not drop any further, but there’s no rule which states they must return to whence they came. They could just lay in deathly stagnation for decades.

It took the Dow Jones about 20 years to return to pre-Great Depression values. So maybe things can “go back up”, s-l-o-w-l-y.

Perhaps the questions should be: Can you retire on 20% of your net worth? Or wait 20 years to recover the whole ball of wax?