Garth was recently intereviewed on CBC’s hit show, “The Hour” about his current bestseller.
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Financial author unrepentent about gloomy view
No shortage of people who want to hear Garth Turner’s dark market forecast
As bad as Canada’s economic situation might seem now, Turner argues it could get much worse with longer-term turmoil in financial markets and continuing precipitous declines in real estate.
The former politician and longtime financial journalist says people should prepare for the worst, even if they hope for the better, in his latest book, After the Crash: how to guard your money in these turbulent times.
His key advice: pay down debt, save money, stay away from buying real estate, find a financial adviser and diversify your investment portfolio.
So far, Turner said in an interview, events on his book tour have drawn large crowds — about 900 last Saturday in Victoria, 400 to 500 at an engagement Sunday in Nanaimo and another large gathering Tuesday night in Surrey.
Turner’s next local event, sponsored by Dundee Wealth Management, is tonight at the Plaza 500 Hotel on 12th Avenue at Cambie Street.
“[The interest] certainly underscores the anxiety people are feeling about their finances,” Turner said in an interview. “People are looking for every shred of information I think they can find.”
The overriding question he hears from people is, “Where is my money safe,” Turner reported.
Not everyone is a fan of his message, especially those in the real estate business who point to forecasts, such as that by Bank of Canada governor Mark Carney, that the Canadian economy will begin recovering by the end of the year.
Turner is unrepentant about his doomsaying role, declaring “there is no reason to give people false hope right now.”
People are free to ignore him, Turner added, and many do. And he’s offering no conclusions about how the recession will shake out and when and how the recovery will happen.
“It’s impossible to have a conclusion,” he said.
What he wants, though, is for people to discuss the range of possibilities for the future.
“I’m not a Bank of Montreal staff economist,” Turner said. “But I do think my perspective gives an independent point of view where I don’t have a vested interest in selling a product or trying to get people to borrow a mortgage from my bank.”
Turner said he speaks what he believes, which is that we’ve entered a deflationary period such as we haven’t seen since the 1930s, and few people have experience with these conditions.
“That means we’ve got to talk about it,” Turner said, “and there probably is no right answer to this because we don’t know how it is going to turn out.”
In the meantime, “there is nothing wrong with caution right now. If [the book] can instill concern and caution in people, I don’t think that’s a bad thing.”
depenner@vancouversun.com
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Garth Turner says hard times have just begun
The Canadian Press
OTTAWA — Garth Turner is finding that the scarier things get, the more people pay attention to his doomsday alerts.
One reason is that he’s out of politics, he says, so his economic forecasts are no longer seen as possibly tainted by partisanship.
But more important may be that the former MP’s alarmist book about collapsing housing prices in Canada — “Greater Fool,” which he began writing last December when the sky seemed to be the limit — has turned out scarily bang-on.
If he turns out to be as prescient with his soon to be released new book — After the Crash — Canadians would be well advised to heed his warning and on how to survive the economic collapse.
Turner, who has worn a number of hats in his career including entrepreneur, journalist, broadcaster, author and combative politician, is predicting hard times for Canada over the next two years and he hasn’t ruled out a good old fashioned depression.
“We’ve had a crash. America has crashed, stock markets crashed, Wall Street crash, real estate crashed and the global economy crashed,” he says of the events of the fall.
“The world as we’ve known it is gone. You are not going to get credit cards in the mail, you are not going to get lines of credit easily. Those days are gone. The question now is are we going into a bad recession, are we going into a depression?”
Turner believes Canada’s gross domestic product will plunge five to eight per cent from the beginning of the recession, which he believes began after Labour Day, to the end, which he says won’t come until the spring of 2010.
As well, he expects housing prices will plunge another 30 per cent next year — on top of the 11 per cent drop so far this year.
For the first time since the Dirty Thirties, Turner expects many Canadians will wind up owing more on their homes than what their home is worth, particularly those who purchased in the last two years with little down payment.
That’s not a depression, as he sees it, but pretty darn close.
Most economists — but not all — would scoff at such doom and gloom, to which Turner replies: That’s what they said when he predicted Canada’s housing market was on the same disastrous path as America’s.
“It’s a relatively straight forward to weave some pretty ugly scenarios,” says Douglas Porter. “He’s probably not too far out of line to say things could be very ugly if policy makers make missteps or don’t step in to support the economy.”
Porter places greater faith in the massive economic stimulus packages being proposed around the world, and in Canada. Prime Minister Stephen Harper is pegging the deficit next year at up to $30 billion, mostly as a result of increased spending to help the economy.
The Bank of Canada and Ottawa have also injected over $110 billion in liquidity — cash –to grease the money markets, and interests rates have been chopped.
Turner agrees those bold actions could stave off the worse, but they also may not, he adds.
“We’ve never had this amount of money thrown at an economic problem, so we’re in uncharted territory,” he says.
“But by the same token, they are blowing their wad all at once, so this better work because we are out of bullets.”
Jonathan Chevreau, National Post
“If I were among the many people tuning into TV shows like “Flip this house” and thinking of speculating on real estate, I’d certainly want to consider Turner’s arguments before borrowing money in the hope of instant riches at this stage of the game. It’s one thing to have a paid-for home you live in and quite another to be speculating on real estate on the hope prices will always rise and a greater fool will arrive to save you from your greed and foolishness.
“Much of Turner’s criticisms are directed at people who have saved nothing for retirement or even for emergencies and who live beyond their means, buying more house than they need with such atrocities as 40-year amortizations. I agree with Turner that if the only way you can afford a home is through a 40-year am, then you’d be better off renting and waiting until you do have enough money saved to buy a more modest home.”
Global CanWest News
“Turner’s advice to homebuyers is to avoid 40-year mortgages and for existing homeowners to stop basing their financial decisions on the notion that real estate prices will continually climb. ” I think people should get used to two or three or four years of a flatlining real estate market, at best,” Turner said.”
Toronto Star
“I don’t want to be an alarmist, but people have to realize there is danger in this market,” says Garth Turner who has released a book this month on Canadian real estate. “There are a lot of catalysts happening right now, whether it’s more taxes, or job losses. At some point people will eventually say, why am I spending $700,000 to live in a crappy home in Leaside?”
“And the numbers support Turner’s claim. Price appreciation in Toronto’s downtown neighborhoods has been particularly steep. A detached home in Toronto’s modest Leaside neighborhood that sold for $470,000 in 1997 at the start of the housing boom, sold (after renovations) last year for $1.55 million. –
OTTAWA – Is the U.S.-style housing meltdown in Canada’s future? With more and more Canadians taking on record levels of debt to enter the red hot housing market, some analysts are beginning to see some of the practices that led to the U.S. housing crash last year developing in Canada.
At the moment, there is no sign that the Canadian housing market _ which has seen the price of homes rise between nine and 11 per cent annually for several years _ going down the disastrous road of the U.S. But as this week’s Royal Bank report showing the cost of owning a home in Canada at the highest level since 1990 suggests, it wouldn’t take much of a downturn in the economy for sky-high house prices in Canada to come tumbling down, and the wealth many Canadians had built into their homes vanish.
The study found that debt had risen to 131 per cent of household income, or $80,000 per household, from 91 per cent in 1990. “Just like in the U.S., everybody is feeling good right now. They are taking on debt, but they are not worried because the prices of their homes are going up. But it would be easy to see house prices going down five or 10 per cent.”
Garth Turner, a business journalist and author whose recent book “Greater Fool: The Troubled Future of Real Estate,” is among the most pessimistic forecasters of Canada’s housing market, saying a loss of consumer confidence, mixed with aging population, could see the edifice come crashing down. “We’ve got this delusional situation where the American housing market is going through the worst crisis since the 1930s and we think we’ll continue to buy houses from each other for more and more money,” Turner said.
Turner believes that cities like Vancouver, where a typical two-storey fetches $650,000, could see a price drop of up to 20 per cent in the near future. For Toronto, where a similar home costs about $476,000, he says prices could flatten this year and perhaps drop 10 or 15 per cent in the next few years. With 83 per cent of Canadian’s net worth tied to real estate, even such modest reductions could spell disaster for many, he said. “We have so many people buying real estate with basically no equity, that even if real-estate flatlines or go down a little bit, that’s a pretty serious situation for them.”
But Turner’s pessemistic view isn’t shared by all. Canadian Mortgage and Housing Corp. senior economist Brent Weimer sees few parallels between the Canadian and U.S. situations, particularly the subprime fiasco that sent the housing market crashing last summer.
Although some Canadians are purchasing homes with little or now down payments, what Weimer calls the “near prime” market, he says there is no Canadian equivalent to ”2-28” mortgages that have been so disastrous in the United States.
Canada Mortgage and Housing, a federal Crown corporation, is the country’s largest insurer of home mortgages _ providing comfort to the lenders if borrowers can’t make their payments _ so Weimer is well-placed to monitor default rates. “We haven’t seen any signs there is trouble, and we are forecasting that prices this year will rise about five per cent, which still represents growth.” Home prices rose an average 11 per cent in 2007.
A CMHC study of homeowners released Wednesday supports the optimism with 88 per cent expressing confidence they can manage their debt. But that is at a time when Canada’s employment rate is at a 33-year-low, incomes are rising at about four per cent, and there are more Canadians with jobs on a percentage basis than at any time in our history. In other words, at the best of times, or darn close.
BMO deputy chief economist Douglas Porter also sees the fundamentals of housing in Canada getting out of whack, although he says the situation is not nearly as drastic as what the U.S. faced two years ago. “Up until last year I thought the strength of the Canadian housing market was justified, but I do think the market got overheated last year,” he said. But he added that as long as Canadians have jobs, housing prices will not suffer a U.S.-style correction.
And he said with the Bank of Canada continuing to cut interest rates, affordability should improve. Still, Turner sees Canadians blindly buying into the latest commodity craze, much like Dutch tulip frenzy of the 1600s, the dot-com bubble of 2000 and the U.S. housing explosion following 9-11 when the U.S. Federal Reserve slashed interest rates to minuscule levels.
“The U.S. problems were caused when the price of real-estate got way out of hand and it got to a point where the average family could no longer afford the average home, so subprimes were a response to that,” Turner said. “Now we see in Canada, we have a similar situation. Real estate prices have gotten out of hand, particularly in some markets, and the reaction is that we now have 40 year amortizations to drop monthly payments, and one or two or five per cent down payments.”
These bubbles all end the same way, he points out. They pop.
B. Francis, Vancouver
I picked up your book today and I cannot put it down. You have hit it right on the mark. We are so overjoyed that someone has finally put it in black and white. I really hope homebuyers read your book before investing their present and future life savings in this insanity. You are definitely not going to be praised by some, to put it mildly, for pointing out the obvious truth, but then again look at where it is coming from. Thanks for a very enlightening and enjoyable read.
The author of a new book, “The Greater Fool: The Troubled Future of Real Estate,” Garth Turner thinks the pieces are in place for a real estate collapse in this country.
The U.S. financial sector has been rocked by subprime mortgages, which essentially provided a way into real estate for people who wouldn’t qualify for conventional mortgages. But Turner told CTV.ca the real story is that housing prices in the U.S. got more expensive than Americans could afford. In Canada, real estate prices have essentially doubled in five years. Turner said he didn’t think that was a “reasonable” increase.Over that period, household incomes have stayed essentially flat, he added.
“What’s been the Canadian response? Well, guess what? We’ve brought in a new kind of mortgage — 40-year amortizations,” Turner said. You can also get a home for virtually no money down, Turner said. “You tell me what the difference between subprimes and a 40-year, no-down-payment loans in Canada is. The net effect is exactly the same. People buy houses who otherwise couldn’t buy them.”
In the biggest markets, people are unquestionably house-poor, he said. The RBC’s affordability measure for a detached bungalow in Vancouver is about 74 per cent and more than 47 per cent in Toronto. Places like Calgary and Edmonton come closer to the national average of 41 per cent.The affordability measure is the proportion of median pre-tax household income required to service the cost of mortgage payments (principal and interest), property taxes and utilities.
The measure has traditionally been around 30 per cent, Turner said. “We’ve got a very screwed-up personal financial situation right now, and I see some dangers in that,” he added. RBC’s Amy Goldbloom told CTV.ca that in 1990, the affordability index hit 46 per cent. But in 2002, it per cent of disposable income versus about 79 per cent in Canada. Total household debt was also much was 32 per cent.
The RBC study finds that for 2007, the U.S. situation was worse than here. Mortgage debt there was 119 per cent of disposable income versus about 79 per cent in Canada. Total household debt was also much higher in the U.S. than Canada. “Americans are more indebted and more leveraged,” she said. Goldboom said the RBC’s analysis and prediction of moderate price increases took into account a slowing U.S. economy’s effect on Canada. “We aren’t forecasting outright declines in prices as we’re seeing state-side,” she said.
But Turner rolled off some troubling statistics, such as sales activity of resale homes in Canada falling six per cent in February – although some critics have argued that blip could be due to stormy winter weather.
If you still want to buy a home, Turner makes the following recommendations:
- Don’t take out a 40-year mortgage
- Aim for a 20 per cent down payment
- Don’t make monthly payments – accelerate if possible
- Consider what future homeowners will want to purchase (i.e., don’t buy a huge, energy-hogging suburban home)
But if you don’t own real estate right now, consider remaining a renter for the short term. “We’re into the most incredible renter’s market coming up. If you simply want to make money and secure your finances, you’re going to rent, because renting is far, far less than the cost of owning right now,” Turner said. “And it will remain that way for the next couple of years.”
OTTAWA – With the subprime contagion spreading around the world, Canadians who hoped their homes would be immune from the carnage are wrong. The disease is here and coming soon to your neighbourhood, says financial author Garth Turner.
The effects of the U.S.-induced mortgage crisis were everywhere on Thursday – in the crumbling U.S. dollar, in Carlyle Capital’s $16-billion mortgage writedown in Amsterdam, in mounting housing foreclosures in the U.S. and in crashing stock markets in Europe and Asia.
“Absolutely, without a doubt, that contagion is spreading to the Canadian real estate market,” said Turner, the author of a new book on the subject titled Greater Fool, the Troubled Future of Real Estate. Within 18 to 24 months, Canadian homeowners could see the value of their homes fall by 10 to 15 per cent, Turner warned, saying early signs of a deteriorating real estate market are “all around us.”
Sales of existing homes fell off the cliff in January tumbling six per cent in January alone – or 72 per cent on an annualized basis. At the same time the number of listings nationwide shot up 11 per cent, Turner said, quoting the Canadian Real Estate Association. And prices are starting to fall, in such once hot markets as Calgary and Edmonton.
At the same time, the cost and availability of mortgages is squeezing the market, as Canadians banks are no longer discounting the posted rate, and as companies like Xceed Mortgage Corp. and MoneyConnect Inc., which lend to riskier borrowers, sharply pare back operations. A big part of the problem, Turner said, is that shaky lending practices that coloured the U.S subprime market are now creeping into Canada.
The availability of that easy money in the U.S. drove house prices to unrealistic levels, which ultimately drove that market into its precipitous retreat. Both factors are at play in Canada, where prices have risen to lofty levels and have only been supported lately by one thing: the 40-year mortgage, which in two years has come to represent more almost half of new borrowings in Canada, which require very small down payments and which add sharply to borrowers total debt repayments.
“If the U.S. crisis was accelerated by people getting mortgages to let them buy houses they couldn’t really afford, we’re doing the same thing here,” Turner said. While he is not predicting the 30-per-cent declines that have become common in such hard hit areas as Florida and California, the danger to Canadians is magnified by our inclination to tie up so much of our money in the homes we own.
“I think this is a giant threat,” said Turner, referring to the 80 per cent of family net worth that Canadians put into real estate.
And adding to the threat of an imminent price correction is our aging population, so many of whom will be trying in years ahead to unload the same four-bedroom three-bathroom suburban homes that were the fashion of their time.
“People are gambling that for some reason Canada will be immune to what’s happening to our giant partner to the south and what is happening in other markets, like Britain, where real estate values are falling,” Turner said. As the declines that began in Canada in January gather momentum, “a lot of homeowners who bought in the last year will find the value of their homes falling under the value of their mortgages,” Turner said.
“We are weeks, maybe more likely only a few months from that.”
Turner’s advice to homebuyers is to avoid 40-year mortgages and for existing homeowners to stop basing their financial decisions on the notion that real estate prices will continually climb.
” I think people should get used to two or three or four years of a flatlining real estate market, at best,” Turner said.
Stephen Wickens, Toronto Star
“He’s good at seeing patterns and identifying potential trouble, even if he can’t tell how far off it is. He doesn’t pull punches either, blasting the media – real estate sections in particular – for letting industry people dominate debates about our housing market health.
He writes that a reckoning is imminent because we’ve been as greedy as Americans, who are enduring their worst real estate deflation since the 1930s. He takes issue with claims that our banks are prudent, arguing that zero-down mortgages and 40-year amortizations are useful only to speculators and people who can’t really afford to be in the game.
He also cites recent reports that personal debt levels in Canada are at record highs and savings rates at record lows, leaving many short on options should hard times hit.
“An anti-real estate mood has swept America. Within months it will be here,” he declares. He claims that suburban trophy houses in some areas of the GTA are lingering on the market and falling in value. He says the collapse will be widespread and long-lasting, in part because boomers will flood the market with houses to finance their retirements – especially since so few employees outside the public sector have much in the way of pension prospects.
His scenario gets scarier, if you fear that manufacturing jobs are in danger due to the strong Canadian dollar and the likelihood the U.S. will slip into recession. The logic is that it won’t take many deeply indebted, freshly unemployed people to trigger a wave of desperation selling. That, in turn, would drag down property values for entire neighbourhoods, leaving many people with mortgages worth substantially more than their homes.
It’s that situation that caused an estimated 1 million Americans to walk away from their homes last year, with predictions that twice that number will follow in 2008. Frightened enough yet?”
The Hill Times, Ottawa
Garth Turner is predicting doom and gloom in his new book, Greater Fool: The Troubled Future of Real Estate. Recent changes to buying and selling real estate laws, such as allowing 40-year mortgages and zero down payments, have allowed Canadians to plunge the furthest into debt in the last 10 years.
“Our real estate values have gone way beyond the ability of the average family to afford houses and the only way they can afford them is taking on all kinds of new debt. That’s exactly what got the Americans into trouble,” Mr. Turner told The Hill Times. “The same conditions exist here.”
Mr. Turner held a book launch on the Hill last Wednesday in room 238-S Centre Block. After a late House Finance Committee meeting and a series of votes in the House, MPs and Senators attended the event to hear Mr. Turner’s real estate advice. He said that more people are unnecessarily buying “great big fancy brand new houses” with all the fixings and they can’t afford them when they should be downsizing or working within their budgets. He wouldn’t divulge how much he spent to buy his own house, however.
With the housing bubble starting to burst, Mr. Turner said the House Finance Committee should be looking at the debt crisis to make people more aware of it and in the process, softening the blow. “Nothing goes up forever and booms end badly. That’s a law that we’ve forgotten,” he said.
How do you know that Canada “has its own, hidden debt crisis just as dire as the subprime mortgage fiasco” in the U.S.?
“Many people think the American real estate market went from good times to terrible times because they had been giving mortgages to people who didn’t deserve them, called subprime mortgages. Actually, in Canada we had pretty well the same situation. We’ve developed in the last couple of years, mortgages that actually are paid back over 40 years instead of 25. That drops monthly payments and it lets people buy houses they wouldn’t be able to afford normally, so we have our own version of these subprime mortgages in Canada. At the same time, our real estate values have gone way beyond the ability of the average family to afford houses and the only way they can afford them is taking on all kinds of new debt. That’s exactly what got the Americans into trouble. The same conditions exist here. It’s just we’re a couple years behind what’s happening in the U.S. Meanwhile, Canadians have 80 per cent of everything they own tied up in real estate. I mean, we have this huge gamble that we’ve taken that real estate will go up forever. You know what? Nothing goes up forever and booms end badly. That’s a law that we’ve forgotten. The conditions are very similar today in Canada to what they were a year and a half ago or two years ago in the U.S. I think there’s no doubt in the world that we’re cruising for the same thing, maybe not a disaster with real estate the way the U.S. is having, but certainly things are going to go down.”
When is that going to happen in Canada?
“It’s already started.”
Has the bubble burst?
“It’s already unwinding. In January, the number of resales went down dramatically across Canada and in February the number went down dramatically in Toronto and the number of listings have gone up. A lot of people are bailing out of houses already and prices are starting to fall. It’s not grabbing headlines yet, but it’s definitely out there. So it has started and I think over the next year or so, it’s going to become a really big story. ”
So what’s your advice to homebuyers?
“If you haven’t bought a home yet, be careful. I wouldn’t take one of these 40-year mortgages, I wouldn’t buy a house with five per cent down, I wouldn’t do what a lot of young buyers are doing today because the only way they’re going to be okay is if houses continue to go up forever and it’s not going to happen. If you’re a 50-something baby boomer with a four-bedroom suburban house, get rid of the sucker now, okay, because things aren’t going to get better in a year or two. If you’ve been thinking of selling, do it. I think we’re at the top of the market and it could be a lot of heartache for people who don’t realize it.”
You’re saying people shouldn’t buy, but people should sell? If people are selling when you’re saying don’t buy, where do the buyers come from?
“That’s the name of my book, it’s called Greater Fool. You’re always hoping that there’s a greater fool who’s going to come around and buy your house. That’s what people have been hoping for in the States. We are going to get an imbalance of buyers and sellers and that’s what makes a market go crazy. Before we had more buyers than sellers, so prices went up and now we’re getting more sellers than buyers and it’s the other side of the pendulum.”
Should Parliament be doing anything about it? Can it do anything about it? Can it prevent something like what happened in the U.S. from happening here?
“There are a few things. These 40-year mortgages are not good news, and they only came in two years ago. In fact, back when I was a Conservative—I admit it—I was the only guy who objected. I was on the Finance Committee and these things came before us and I said this is going to be a big problem, but we passed it, so that’s something the government should look at. The easier we make it for people to get into debt, the more debt they’re going to take and then there’s going to be more problems so that’s an issue. Interest rates, we have to work hard to make sure they stay as low as possible. Of course, the thing that should really happen is everyone should buy my book and read it and then they’ll know exactly what to do.”
Toronto Life magazine in a recent cover story suggests this generation of home buyers is “house poor” and a “mortgage enslaved generation.” Do you agree with that?
“I do. I think because houses have gone up and not only that, the fact is everyone wants granite countertops, everybody wants a media room and a deck and everything, so it’s not just that young people are buying houses, they’re buying great big fancy brand new houses with a small amount down. We’re the most indebted generation. Canadians have never had as much debt and mortgage debt has gone up seven fold in the past 10 years. So yeah, people are going to pay a big price for that granite countertop.”
Can you tell me how much?
“Nope, but I follow my own advice.”
Greater Fool: The Troubled Future of Real Estate, by Garth Turner, Key Porter Books, $21.95, 220 pages.
Garth disputes real estate spins
Excerpt from Greater Fool:
Why every Canadian needs a financial advisor – now!
“Surveys consistently show most Canadians fear they will lack enough money on which to retire, and they’re right. With life expectancy increasing as never before, we risk running out of money far more than losing it in a bad investment. Half of us are making no RRSP contributions, in large part because we have every available dollar trapped within the walls of houses, or devoted to mortgage debt service payments. Collectively, we are so far behind in our retirement savings contributions we likely will never catch up. We have billions invested in assets, like Canada Savings Bonds, which give a negative real return, while at the same time throwing money at things which hit new lunatic highs, like gold bullion.
This is behaviour almost guaranteed to cause financial heartache. But none is worse than our misdirected and misinformed love affair with houses. We invest in real estate, almost without exception, devoid of impartial or independent advice. Instead of working with an advisor who is compensated over time by the real growth in our diversified portfolio – as a manager or advisor is – we employ an agent who’s paid a one-time commission payment on the closing of a deal.
Ensure you never confuse a realtor with a financial advisor. Agents are focused on one asset only, not your entire portfolio of assets or your lifelong accumulation of wealth. And so it should be. But you need more help. Real estate assets must fit into an overall financial portfolio, and never be a substitute or those other things which can provide steady growth and liquidity.
The bottom line for millions of us with houses is stark: Will all the money there be safe, or at risk? If the market does decline, will it recover? Do I need to take action to protect myself and my family? What should I expect? Will I be able to get at my money when I need it? When time is not on my side?
Clear answers elude us. Few people in Boston, where home values doubled between 1997 and 2007, would have then expected, without warning, the worst market decline since 1938. I trust nobody in Vancouver, Kelowna, Saskatoon or Toronto expects that, either.”
