Tragic

The subject line of the email three weeks ago was typed in caps and had four exclamation marks. “Desperate,” the note said. “Garth, you’ve got to help my family.” And I tried, of course. But this was a Greek tragedy.

Turns out father has a restaurant in Hamilton, where he’s made a ton over the past twenty years. Most of it he sent back to the old country, because of the great interest he could earn in an Athens bank account (guess why?). So now the family’s life savings (about 900,000 euros) sit behind some Corinthian pillars on a street where cops and protesters are bashing heads.

You gotta bail, I told them. Get a wire transfer going now because you face two giant threats – the euro tanking, and that bank going pink-side-up. Then I explained how. But it didn’t happen. Turns out papa has not declared any of 20 years’ worth of interest on his Canadian taxes, and now fears losing a quarter of his wealth to the CRA.

Then, I said helpfully, you’re screwed.

Human emotion never fails to beguile and ensnare us. Here a family opts for greed over fear, and in the coming weeks (or days) all that money will likely be lost. But this is not about Greece. Even though a sovereign looks increasingly likely, causing financial panic, a run on the banks (hard to do from Hamilton) and institutional insolvency.

It doesn’t stop there. European banks have $2 trillion in exposure (also known as bum loans) to Portugal, Ireland, Spain and Italy (as well as $136 billion in Greek debt). So, if Greece decides to stiff its bondholders, dump the euro and print its own money, then borrowing costs in all of Europe would surge – pretty much kneecapping the four losers in the last sentence. More debt crises would follow. The euro would tank, the US dollar soar, equity markets roil, credit seize up, commodity prices tank, with house prices in Edmonton and Saskatoon feeling the punch.

But it could be better. Or worse.

Some people surmise we are going for Lehman Part Deux. Others blow that off as extreme, saying a new banking and credit scare will only bring buying opportunities. In other words, nobody knows, but everyone has an opinion.

This brings me to our weekend experiment, as I asked for thoughts on where Canadian housing values might be by the end of the year. To liquor up initiative, I threw in five copies of my current book for the most thrilling responses. It worked. There are more than 300 as my personal assistant and masseuse is typing this (Jack recommended her), too many of them brilliant. I will render a verdict soon.

Clearly nobody has this figured out, although I’m sticking with my view that residential real estate will be a spectacularly bad asset to have your net worth sitting in. The risks are swelling like a gland on a July night. Japan’s exports have tanked, China’s housing market is cooling, America’s debt is ticking, Canada’s jobs are leaving and everybody you know owns too much stuff and pigged out on debt. Why should real estate – bought with extreme leverage after your spouse falls in love the kitchen faucets – be immune from it all?

In any case, I thank all of you who toiled to express your wisdom. And you thought this pathetic blog was only about breasts and motorcycles.

Let me conclude with a few email snippets from non-Greeks.

Kelowna (from a blog dog’s realtor):

No offer at this time – the market is still stagnant in the condo market – we are seeing activity in some areas and pricing – it seems to be taking longer to sell properties – we are now into 12 – 18 months for condos and 12 – 14 months for single family – the days on market are often skewed as the days on market revert back to zero when a new MLS number is allotted.

Toronto:

We bought our beautiful dream home in Toronto for 1.05 million dollars.  Anyways, 4 years later, husband gets transferred to the USA.  We sell for 1.2 million dollars.  So we only made about $150 000 profit after 4 years of living there.  We came back to Toronto last month expecting the housing market to have softened or moderated since we sold our home.  Instead, it has gone crazy.  In fact, the home we sold for 1.2 million would sell today on the market for 1.7 million.  And apparently in our neck of the woods, the HAM is buying up these 1-2 million dollar monster homes like they can’t purchase it fast enough.  Little tear down homes are going for 1 million now.  Sickening. Knowing we undersold our home makes me sick to my stomach and it becomes quite the bitter pill to swallow.

Vancouver:

Being a west coaster myself and having grown up in Vancouver in the 70′s, 80′s, I’ve witnessed a transition from a modest Vancouver to a city that has a serious image problem. God help anyone who should go out of their way to shatter the pride of Vancouver like the Boston Bruins did in game 7! We saw the results of that during the riots downtown Vancouver after the hockey game.

The riot was not unexpected by me in the least.  With the extreme road rage I experience here on occasion on the west coast it was just another case of too much pride. How are we better or different from than the US? Are we worse is my question. The only reason the crowd didn’t get out of hand during the gold medal Olympic game in 2010 was because we won.

Calgary

Yikes, despite sending your blog site and sample advice to them, my niece and her beau are preparing to take the house plunge in Calgary.   Good jobs, some savings, but entirely likely to bite for over the failsafe line of twice their family income.  They have already been pre-approved, by the “slimers” running the banks for a $400,000 mortgage.

I’m trying to convince them that they will lose their downpayment if their respective companies want to transfer them, promote them, out of Calgary to another locale. In that case, they will not be able to ride-out- the- crash  saddling the saddle in Calgary and will end up owing the bank tons of money because they’ll be underwater if they sell at that time. Help!

Vancouver:

Please see the attached spreadsheet for the visuals (below), but my latest numbers forecast a 39% decline in Vancouver real estate based on a technical retracement back to the swing lows and a 42% decline based on a fundamental outlook to bring prices back to a historical multiple of rents.  The situation becomes much more bearish from a fundamental perspective if we assume an overshoot to the downside of the price/rent ratio.

This is a response to your post “Unhealthy” from June 17. I did not respond in the comment section as I did not know how to post the raw data and accompanying graphs without an online link. I realize the data is only for Vancouver and it does not predict an exact timeline, but I hope that even if it does not win the contest at least you will find it informative. Certainly today Vancouver RE is the suckers trade of the decade, akin to buying condos in Miami in 2005 or dot com stocks in 2000.  You do good work. Let no one tell you otherwise.

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