Housing bubble to burst says Jarislowsky

Stephen Jarislowsky has been warning people for years that the Canadian housing market is in a bubble and he is "convinced" its going to burst eventually. Jarislowsky is chairman of Montreal-based investment adviser firm Jarislowsky Fraser Ltd. He says the housing bubble is fueled by Canadian government measures that encouraged consumers to take on debt and mortgages they can't afford.

So for example if someone buys a home in a Toronto suburb for $600,000, but can't afford it they eventually renege on their mortgage its the government which takes the hit because they've basically written banks a blank cheque by insuring mortgages. If a thousand such mortgages go bust, the bank then has to sell the homes at a reduced price during a bad real estate year (ie. they sell the homes for an average of $500,000) and the government ends up with $100,000 times 1,000 in losses = $100 million. And that is just for a thousand houses if the bubble bursts and people renege on mortgages... what if 50,000 people lose their homes? Or 100,000? And what if prices slide a lot more than 15%? In the worst case scenario, lets say 100,000 people lose their homes and the average value lost is $200,000... that is $20 billion that the banks/government are on the hook for.

When the bubble burst in the USA over a million Americans lost their homes in 2008.

“They have basically encouraged people to buy houses based on cheap mortgages,” says 84-year-old Jarislowsky. “That has created the opposite effect of what was desirable.”

While Canadian home prices and resales grew during the Spring this year, the sudden drop in sales during the Summer shows Jarislowsky is probably right about the bubble bursting. The big Canadian banks are also in panic mode and they know there is an economic roller coaster coming. Even Canadian Prime Minister Stephen Harper is running for cover, trying to blame other people for his economic failings.

“I am convinced there is a housing bubble in Canada,” said Mr. Jarislowsky in February. His investment fund owns shares in Canada’s four biggest banks and they stand to lose tens of millions when the bubble bursts.

Jarislowsky is one of Canada’s wealthiest investors with a personal fortune worth $1.85-billion according to Canadian Business magazine.

Meanwhile Canadian Finance Minister Jim Flaherty claims there is “no clear evidence” of a housing bubble in Canada, according to Flaherty's spokesman Chisholm Pothier.

Jarislowsky says the government should have put more stimulus money into boosting infrastructure, not household spending. Stephen Harper's temporary tax credit for home renovations was limited to first-time home buyers and encouraged cheap mortgages from banks, but this only inflates the housing bubble even more by making too much available credit for home buyers. Worse that tax credit has already run out and the bubble bursting could potentially rob anyone who bought a home in the last 8 months and can't afford it

“I conclude that the prices of housing today in the U.S. are cheaper than they should be, and that the prices in Canada are far more expensive than they should be,” says Jarislowsky. “Excess spending by the consumer and going further into debt was the worst thing that they could do, and that is what has happened in Canada.”

Jarislowsky isn't the only one predicting a bubble bursting. See Also: Tea Leaves for Toronto Real Estate

Burying your head in the sand isn't going to change the earthquake happening around you.

Bank of Canada raises rates again

The Bank of Canada has raised interest rates again, the third time in 2010, up another 25 basis points from 0.75% and bringing the total to 1%.

People with variable mortgage rates or lines of credit will notice the effect immediately...

However the good news is that banks are becoming more competitive with their mortgage rates... the slumping Canadian real estate market is dragging its knuckles and looking like its going to get punched out for the count... and as a result the Canadian banks are becoming super competitive about trying to get your mortgage.

However I am worried the Bank of Canada increase of mortgage rates will just scare homebuyers even more, worsening the bursting real estate bubble that has started.

When you consider that Canada might fall into a double dip recession the Bank of Canada seems to be playing it fast and loose... and taking far too many risks in their efforts to curb spending and household debt.

Home sales drop in August

Sales of existing Toronto homes fell 23% in August compared to 2009. New figures released today show sales dropped to 6,222 (compared to 8,035 in 2009). This is the fourth month for a drop in sales.

The average price is still up 6% compared to last year, despite the lack of bidding wars. Realtors were hoping for a 10% increase but that didn't happen since the Toronto real estate market is shifting to a buyers market. On average prices this year are still up 8%.

“The prospect of interest rate hikes and new mortgage lending rules prompted some households to purchase a home sooner than they otherwise would have this year,” says TREB president Bill Johnston. “The result has been a larger than normal dip over the summer months.”

Analysts keep repeatedly that prices are due for a fall in 2011. It is now taking longer to sell a home, 36 days on average compared with 30 last year, up by 20%. Listings are also up by 20% as the market becomes more flooded.

Homes in the area around Mount Pleasant are considered to be the hot commodities. Ie. Lawrence Park, Leaside, Davisville Village, Moore Park and Rosedale.

One Bloor East / Number One Bloor

It was the scandal everyone was talking about in 2009, the collapse of plans by the Bazis to build a huge skyscraper condo/hotel on the site of One Bloor East. Bazis International is an architectural company from Kazakhstan with strong ties to Toronto in Canada. The company normally builds residential communities, office towers, government buildings, hotels, apartments, theatres, shopping malls, and industrial complexes.

Thus when they announced in 2007 that they were tearing down the old Harvey's and adjoining buildings to build a huge 81-storey condo / hotel, they seemed like the perfect company for the job.

It was to be the most expensive and prestigious condo in Toronto. Rich people were lining up down the street for days just to get a chance to bid on the properties. Fist fights were breaking out and arguments as tempers and patiences became frayed. When they were finally allowed in to bid on some of the condos available the company announced they had doubled all the prices. Even so the condos sold like hot cakes and they were sold out in a matter of days.

The finished building was to have 189 hotel rooms and 612 condominium units. The glass and metal structure would have used the latest environmentally friendly and efficient technology making it one of the greenest condos in Toronto.

But all was not well within Bazis International. They had taken out loans to buy the land in the first place and to deal with construction estimates they decided to shorten the building to 67 floors. The Bazis had purchased the land for $63 million in 2007, but they ended up defaulting on a $46 million loan from investors.

By 2008 the global lending crisis was hitting hard in the USA and investors wanted their money back. They were forced to sell the property and give back the deposits from condo buyers. Bazis sold the property in July 2009 to Great Gulf Homes and the land currently sits empty.

Local high school teacher Stephen Young and a number of friends have since started a Facebook group and a petition promoting the idea that the vacant land be used for a public park... or more precisely "Bloor Yonge Square". But its doubtful the city will come up with $60+ million to buy the land and turn it into a public space.

Great Gulf Homes plans to build a 65-storey condo, using the name "Number One Bloor", and will be designed by Hariri Pontinari Architects. The first 6 floors will include retail space, a mall, a movie theatre multiplex, a cafeteria, restaurants and an outdoor terrace open to the public. The condo will have 687 units. See the architectural renderings below.





Of course such a condo is beyond the means of mere mortals like myself, but one can dream can't they?

Extreme Heat kills Bed Bugs

Some homeowners are turning to extreme measures to kill off their bed bug problem. One solution (and often an expensive one) is to kill the bed bugs using heat, by essentially turning your home into a large convection oven.

There's two ways to do this:

#1. Hire a professional like 'ThermaPureHeat' or 'Magical Pest Control' to kill your bed bugs by pumping hot air into your home, at a cost of roughly $1 per square foot this is an expensive method. They pump hot air into your home for several hour, raising the temperature inside to 50 degrees C.

At 43 degrees C the bed bugs start coming out of the woodwork looking for a place that is cooler. Within 20 minutes of living in 46 degree C temperatures all the adults are dead, due to the heat and water loss. It takes another 30 minutes before the eggs are dead too. At 50 degrees for several hours all the bed bugs and their eggs are dead and to guarantee none managed to hide in a crack in the wall the company has fans to blow hot air into every nook and cranny. The extra time spent is to make sure every section of the home is permeated with the heat so that nothing survives. (Its recommended you remove anything that is vulnerable to the heat, like CDs, DVDs, etc.) All organisms have a thermal death point and for bed bugs its approx. 46 degrees C (115 Fahrenheit).

#2. Do It Yourself. You will need an industrial heater, fans and you will want to raise the temperature to 60 degrees C to be extra certain they're all dead. You will also want a thermometer gun and a fire extinguisher to make certain all the places in the home are heated to at least 46 C. The fire extinguisher is in case you have anything combustible that you forgot about.

However this technique of heating your home doesn't work that well on condos or apartments. The bed bugs tend to get into the neighbouring apartments and they're much harder to get rid of.

REMEMBER TO TURN OFF THE FIRE ALARMS! The last thing you need is a false alarm visit from the fire dept. from the heat setting off the fire alarm.

According to ThermaPureHeat they've only had 1 fire in almost 100,000 jobs and that was because of a lit cigarette near the propane, and nothing to do with the hot air being pumped into the building.

I know a third solution. You invite Stephen Harper over and he kills all your bed bugs with a load of hot air.