Economic update

[ashedfc]

"10 Practical Steps That You Can Take To Insulate Yourself (At Least Somewhat) From The Coming Economic Collapse".
This info is reflecting the US economic situation, however, Canada will also be indirectly affected (although not to the magnitude of US).
http://www.infowars.com/10-practical...ollapse/print/

[ashedfc]

The Poor Have No Chance of Joining the Rich, the Game is Rigged (worth reading & please check the video link at bottom)
"Financiers - like bank robbers - do not create wealth. They merely distribute it."

http://theburningplatform.com/blog/2...tured-article/

[ashedfc]

An IMF report published today. (Conclusion is worth paying attention).

http://www.zerohedge.com/sites/defau...0Economies.pdf

[brunt]

The Poor Have No Chance of Joining the Rich, the Game is Rigged (worth reading & please check the video link at bottom)
"Financiers - like bank robbers - do not create wealth. They merely distribute it."

http://theburningplatform.com/blog/2...tured-article/

While the "game" is indeed rigged, I believe that it is a great disservice to oneself to assume that "the poor have no chance of joining the rich".

12 years ago, I was facing losing my house. I turned my life upside down, and without taking any big risks (primarily just saving over 50% of my income annually) and working as an employee with no pension and with no big wins in my investments, am in a position where my wife and I are extremely comfortable.

Yes, the cards are stacked against us - it is important to realize this. But that doesn't mean that we shouldn't play to win. Maximize income, minimize expenses, save and invest the rest. Rent often makes more sense than owning.

Don't pay interest. If you believe that "the bankers" rob us, then deny them any income from yourself.

We are all given brains and have the ability to think. If "the rules" are stacked against us, then don't play by their rules. Sure, obey the law, but don't do something just because somebody else says that you should.

[ashedfc]

Economic Weekly prespective (for those with appetite to read & update)

http://www.zerohedge.com/sites/defau...er+1,+2010.pdf

[Cheap]

Brunt,

I appreciate hearing that some people can be financially comfortable if they use an appropriate financial strategy.

In your post, you mentioned rent. Is it better to rent as opposed to buying a house? (A question that I might be asking myself in the far far away future.)

[brunt]

In your post, you mentioned rent. Is it better to rent as opposed to buying a house? (A question that I might be asking myself in the far far away future.)

Note - despite what it may look like, I am not against owning a home in principle. I believe that there is a right time to own and a wrong time to own. Some circumstances warrant owning, others do not.

I have a very unpopular view on this subject. If you try making this argument at a party, expect to lose a few friends on the spot.

With that said, keep your mind open, and consider facts and economics, not hope and greed.
-------------------------------

This is an area that is often difficult to discuss due to the emotional nature of home ownership and dealing with the legions of people who are absolutely convinced that real estate goes up and only up.

The first thing is to realize that the oft-quoted advice given by well-intentioned relatives that "renting is like throwing away money" is only half of the story. Paying property taxes, mortgage interest and maintenance is also throwing away money, but this part never gets mentioned.

A quick history lesson:

Our demographics (the study of the distribution of the age of members within a society) have dictated that real estate will have had a long and steady run up in values starting in about 1950. The parents of baby boomers needed larger houses for their growing families. As the post-war economy grew, so did the ability of these families to buy even bigger houses. Cheaper vehicles meant that previously sparsely occupied land became viable as suburbs, and a steady supply of manufacturing jobs ensured that the demand would exist. As the baby boomers left home and got married, the smaller older houses had a steady market as their parents moved to even bigger houses. Once the baby boomers became established, their appetite for real estate exploded and the McMansion was born.

So far, real estate looks like a no-lose scenario, doesn't it? Up until about 2006, everybody under the age of 50 has seen nothing but steady growth in real estate other than a couple isolated and short-lived hiccups. And when viewed in terms of the above time line, one would expect real estate to climb.

Fast forward to now, and things look a bit different. The parents of the baby boomers have been selling homes for many years now. Even the oldest boomers turned 65 this year. Seniors with empty nests do not need and typically do not want to remain in large, empty homes.

The government has seen this and played their most powerful card to keep real estate prices strong. You see, the price of real estate is primarily driven by two factors: one's wage, and the house's monthly cost of a mortgage. The government could not change the wages, so they lowered the interest rates. This meant that the same monthly payment could buy a more expensive house. Unfortunately, sellers know this too, so this drives up the house price simply because it can. So rather than buying a nicer house, it just resulted in the same house selling for more money.

This works until interest rates increase, wages fall, or (and this is an important one) future expectations fall. Wages are flat, and interest rates are at historical lows, and are (in my opinion) likely to increase. Government, real estate workers, builders, banks and home owners are all putting on a hopeful face for future in real estate, lest expectations fall. Some will become downright ornery if you dare question that real estate always increases.

And it doesn't always increase. Look at the US since 2006. Prices have fallen nationwide and have fallen very dramatically in some regions.

There are those who argue that it is different in Canada. Our banks were not as aggressive in making questionable loans, we don't have as many foreclosures, and we're just so darn nice up here.

My response is that we are subject to the same laws of economics here. These people will not put forward the argument that on one hand prices should be higher in the US. Americans get to write mortgage expenses and property taxes off their income taxes. They can lock in low mortgage rates for 30 years with a guarantee of no increases. They pay no penalties to the bank when they pay off their mortgage. These are all very powerful incentives to own a home. Yet their prices are still falling.

This is not to mention that we have had some pretty questionable loans here too.

A bit of background here. Recently, the average Canadian house price equals roughly twice the average US house price. And our average wage is lower.

We currently rent a second place in Pennsylvania where I travel for work. It is far cheaper (and immeasurably more pleasant) than staying in a hotel. We have started looking at buying down there and have our eyes on one house in particular. Our real estate agent in Canada just about fell over when we showed it to her - it is far nicer than anything available in her region, and if an equivalent were available, she believes that it would be twice the price here. Same house, just more expensive in Canada.

Given all of this information, I honestly believe that it is inevitable that real estate prices are bound to fall in Canada for the next few years. This is blasphemy to say this in polite company, so you may want to keep it to yourself. I believe that prices peaked in May or so this year. July and August appear to have been dismal for sales.

You have to be somewhat careful when looking at stats coming from the real estate cabal. They quote year over year or month over month figures as if they were interchangeable. They are not, they are used simply because they can choose the better looking number. Both are valid, but they should report both, not just the rosier one.

There are also two important stats, the average sale price and the number of houses sold. Again, they are both important. But it is crucial to note that when things start turning, the average price may still increase, but the number sold will decrease. This is what we have seen in August in spades.

OK, I have written a small novel discussing why I believe that prices are likely to fall. Now on to your actual question.

Some rules of thumb:

1) Leaving a owned house is very expensive. If you are not going to stay in a house for more than five years, then without some pretty good appreciation in house prices (which as I mentioned above, I believe prices will actually fall), then you are better to rent. The real estate commission, lawyer fees and penalty for paying off a mortgage early equal many, many months of rent.

The flip side to this is that if you are intending to stay in one place for a while (say longer than 10 years), then a house bought at the right price is likely to be cheaper in the long run.

2) Historically speaking, the average house has cost between 2 1/2 to 3 times the average wage. I believe that it will get that way again. Where I live, this ratio is well over 5. Vancouver is over 9 times. This means that they are too expensive. This will change.

3) It is not different in Canada.

4) A trend holds until it doesn't. The argument that real estate has been the path to riches over the last 60 years so it is bound to in future does not hold water. People who worked for the car companies had a pretty sweet deal until about 5 or so years ago. Ask them now if it is such a good deal.

5) You should not have more than 40% of your net worth tied up in a single asset. This is especially true if this asset is likely to decline in value. If you have $50,000 in savings, a $400,000 house and a $350,000 mortgage, then you have 400% of your $100,000 net worth tied up in a $400,000 house.

If you tried this in stocks, people would say that you were crazy. But somehow it is entirely acceptable in real estate. This person should ideally have a $50,000 house with no mortgage or savings, which would still have 100% of their money in a single asset.

People are more worried about the house they want than the house they can afford. My four brothers and I grew up in an 800 square foot house. Not once did I think that it was too small for us.

6) Things decrease in value as they wear out. People buying cars know this. Clothing goes basically to zero as soon as you buy it. People seem to be under the mistaken impression that a house increases in value as it decays. This makes no sense at all as upkeep and renovation costs increase as the house ages.

OK, I have on my asbestos suit for the responses. Fire away, guys.

[DaveP]

OK, I have on my asbestos suit for the responses. Fire away, guys.

Are you kidding? That is the most informative and thought-provoking post I've read in a long while.

[nadiabreckon]

I totally agree with your statment Brunt! Thank you for taking the time to write down what some people are too afraid to say in fear of what others might say about them!

[ashedfc]

Bullion - an important component of every portfolio. Its never too late to prepare - as:
"A much bigger crisis awaits"

http://bmgbullion.com/doc_bin/WhyBul...iningStock.pdf

[ashedfc]

Government Economic Reporting is manipulated, as we get revisions after couple of months (unemployment revised upwards, GDP revised downwards). Its all election politics - to make people feel good.
Reality is far different.... (if you have time & patience; please go through this report)

http://www.shadowstats.com/article/h...ation-2010.pdf

[ashedfc]

Peak Denial about Peak Oil ???????

http://theburningplatform.com/blog/2...bout-peak-oil/

[ashedfc]

Is Canada immune from a foreclosure wave ??????

http://financialinsights.wordpress.c...losure-wave-2/

&
Is there a Housing bubble????

http://financialinsights.wordpress.c...ousing-bubble/

[pbieganski]

Me again
putting on the flame retartant business suit

Here we go

Gold itself is not a good investment at the moment, it is a bubble and God onlyknows when it collapses.

...Evil Genius here so kind of not going to bet against God...

Gold may be a hedge if you are an extreemely sofisticted investor.
Ask anyone who bought it and stored it since 1980 they did not get a good enough return to cover inflation as of 1980 to 2010


see chart..
http://www.pensions.gold.org/assets/...art/index.html

[ashedfc]

Me again
putting on the flame retartant business suit

Here we go

Gold itself is not a good investment at the moment, it is a bubble and God onlyknows when it collapses.

...Evil Genius here so kind of not going to bet against God...

Gold may be a hedge if you are an extreemely sofisticted investor.
Ask anyone who bought it and stored it since 1980 they did not get a good enough return to cover inflation as of 1980 to 2010


see chart..
http://www.pensions.gold.org/assets/...art/index.html

You are comparing an Old Chart (as financial markets have changed a lot after 2007). Get an updated chart on Gold in any major currency US $, Euro, Yen, Pound, Canadian $, Australian $, you will realize the difference. Offcourse Gold is not an good investment for ever, or even nothing is good forever. There are good times & bad times for every asset class. When Gold goes parabolic it will be in a bubble, & then caution is required.

ASH
www.edfc.ca