Aug 28 Market Update

Still on vacation but back in town.  Good to see the blog humming along without my meddling.   Interesting discussion of full service vs mere postings in the last thread.   I think this topic deserves a lot more attention and analysis, both on the selling side (mere postings) and on the buying side (commission offered).   Is there evidence that the level of commission both on the buying and on the selling side is correlated with positive outcomes for buyers or sellers?   It’s a topic that much of the industry wishes would never be mentioned.

I recently made my info and brokerage more prominent on the right because the Real Estate Council said it wasn’t displayed as required in the advertising standards.  Point is they generally don’t come looking unless they get a complaint and I’m sure any attempt to talk about the holy grail of commissions will unleash some more.   Should be interesting!

For now though, here are the weekly numbers courtesy of the VREB.

Aug 2017
Aug
 2016
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 157  322  483  644
883
New Listings 222  431  676  911
1120
Active Listings 1932 1915  1942  1951
2094
Sales to New Listings  71%  75%  71%  71%
79%
Sales Projection  777  750  750
Months of Inventory 2.4

Inventory continues to creep up in a time when it would usually be flat or decreasing.   Not a lot yet, but something to watch.   There’s always a drop of listings at the end of the month as the dregs expire, so we should expect to finish with about 1900 active listings or some 9% less than this time last year.  That’s despite listing cancellations up as the leftovers from spring that didn’t cut it get stale.

 

Prices still not going much of anywhere for single family detached which are little changed from last month and flat for the year.    For the entire market we are still appreciating strongly but that is driven primarily by condos, where medians are already up by 20% from January.   Will be interesting to see what happens with the detached market, I’ve said many times I don’t believe in flat prices with these sellers’ market conditions, but the longer it holds the more I wonder.

Meanwhile the industry is continuing to wait nervously for the regulators to crack down on some of the more ethically conflicted situations in real estate, like limited dual agency where the same agent represents the buyer and the seller.   Everyone has been expecting this to be abolished for a year now but it’s still here so it seems the council is having more issues getting rid of it than they anticipated.   As of now, they are expected to announce a change this fall to this as well as possibly other areas that were recommended in the report last year.

What would you like to see changed in the real estate industry?

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177 thoughts on “Aug 28 Market Update

  1. totoro
    September 1, 2017 at 9:20 pm
    If you can’t get refinancing from a different institution… your rates are going up.

    No, renewals are granted at competitive rates. You might not be able to get the lowest rate available.
    <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<

    If, in fact, you have to refinance and your institution can’t qualify you within the new OSFI legislation you will be forced to find financing elsewhere. If you can’t get financing from another institution you will be selling your house.

    James is correct in his comment on higher rates because if quality lenders can’t provide the loan the alternative lenders will not be providing competitive rates.

    The bigger consequence, of course, would be a forced sale.

    Totoro, regarding renewals, I have in fact emailed OSFI regarding this topic without response, as of yet. Perhaps you could post a redacted copy of your answer from OSFI because re-qualification at renewal is the immediate market killer.

    I simply chalked up the non response as lack of interest by OSFI in regards to Joe Public asking a question about legislation that hadn’t been enacted as of yet. Clearly you wrote a sweeter letter.

  2. No, renewals are granted at competitive rates

    Renewals are currently granted at competitive rates because lenders know there is nothing stopping you from switching other than inconvenience. If you can’t switch, those rates will get less competitive.

  3. Gamb:

    I think they are totally out to lunch. It just seems way overpriced to me. What does everyone else think?

  4. If you can’t get refinancing from a different institution… your rates are going up.

    No, renewals are granted at competitive rates. You might not be able to get the lowest rate available.

    I wouldn’t be too quick to jump to that assumption Totoro.

    I didn’t. You can follow up by email with OSFI yourself. They will write back and clarify it.

  5. “The amount you put down on a rental property does not influence the return you get from it. A bad rental is a bad rental whether it is purchased with cash or financed.”

    There is a difference. Bad investment paid in cash – generally you can wait out a bad market. Bad investment heavily leveraged – you can be forced to sell at the worst time.

  6. Scotia calling for four rate hikes in the next year. Yikes !! 6% stress tests will be massive!!

    Via Garth:

    My buddy Derek Holt, chief egg at Scotiabank, is now sounding like a raging bull. “Scotiabank Economics expects the Bank of Canada to raise its overnight rate by 25bps next Wednesday,” he says, flat out. “We believe the central bank remains on the path toward raising its policy rate by about one full percentage point by the end of next year in a more front-loaded set of moves—and likely more increases than priced in by markets through 2018.”

    Greaterfool.ca

  7. @Leo

    On the one hand rates are rising, so maybe fixed is better now, on the other hand I still believe the country is so indebted that any small increase in rates will immediately cause a recession and stop future rate increases so I’m inclined to go variable still.

    I agree that many households will implode with higher rates, but I could see variables going back over 3% before things get ugly out there, which is why I’m leaning towards the 5 yr fixed of 2.89. I hate the forecasting game!

  8. @ JS

    “You are not an accountant.”

    So what? All that we are discussing are the facts.

    “AWS is an product build for external consumption, the development of it is an expense.”

    Web services represent less than 10% of Amazon’s gross revenue and Amazon’s net income is less than $2 billion. So even if all of AWS revenue were profit, it would mean that the online retail business is a massively losing proposition.

    However, insofar as Amazon is developing software for use in its main business, it is making a capital investment, not incurring an expense.

    However, it is a fact that many businesses probably do expense software development, since it must be difficult for a tax inspector to distinguish between maintenance, and creation of new functionality. And then there is “sympathetic administration” by a revenue department that was clearly politicized under the Obama administration — and Bezos is a man with political influence, as owner of the Washington Post, and a CIA contractor. Unfortunately for him, perhaps, Trump won, not the candidate he backed.

    But if Amazon is, in fact, paying every cent in tax that the strictest audit would require, then we can say for sure that it really is remarkably unprofitable for a company with a market cap nearly half a trillion dollars.

  9. I corrected that James. Mike’s spiel is usually to jump in when danger lurks and pump the FOMO. Kinda like Bearkilla. 😉

  10. Michael returns in panic mode to push his bullshit charts. The place is maxed out dude and the prices are beginning their long descent.

    Pretty sure he was agreeing with you, charts showing that there will be more people downsizing and less people buying SFHs.

  11. What software developers develop are capital asset. Software used in the existing business should appear in the books as a depreciable capital asset. It makes no difference whether that asset is a copy of MS Word that you bought off the shelf, or something you developed in house. The cost is not an expense.

    You are not an accountant.

    AWS is an product build for external consumption, the development of it is an expense.

  12. “With 50+ percent gains past couple years and sitting near a million $ core, should be a half-decent correction.”

    I stand corrected, Mike has dumped his slum shacks. Much more than a correction, more like a land slide. 😉

  13. Michael returns in panic mode to push his bullshit charts. The place is maxed out dude and the prices are beginning their long descent.

    Thought you were a bit more intelligent and dumped but someone needs to be a bag holder just like all that GE stock you pumped that’s down 25% and counting. 😉

  14. SFH median down $10,000
    SFH average down $37,000
    MLS SFH Benchmark down $6000

    Second month in a row the median and average is down. Benchmark was a given to fall too with the dozens of price slashes the last month the bulls have dozens of excuses for.

    You had your chance to get out at the top and ya blew it bulls. See ya at the bottom of the cliff. 😉

  15. Which is it? I suspect one of those is the average, probably the second one.

    “The president and a small group of people know exactly what he meant,” – Sean Spicer

    but yes the second was supposed to be the average.

  16. SFH median down $10,000
    SFH median down $37,000
    MLS SFH Benchmark down $6000

    Correct, Leo meant the SFH ‘average’ was down $37,000 from last month (condos are still up)

    With 50+ percent gains past couple years and sitting near a million $ core, should be a half-decent correction.

    More concerning to me is, at some point, the 40-yr boomer tailwind for houses turns into a ~20yr headwind. Should be felt on both the supply & demand side (as household formation decreases). I tried to show what the heck I’m talking about on statcan’s 2016.

    One factor that may somewhat lessen the “blow”, is if we quickly open the flood gates on immigration (doubtful).

  17. Totoro: “Also, following up on the OSFI B-20 proposed changes… they don’t apply to renewals if you don’t change financial institutions. They apply to refinancing, transfers and new borrowing.”

    <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<

    I wouldn’t be too quick to jump to that assumption Totoro. Osfi understands that a lot of mortgages did an end run on their last legislation. This part of the B20 legislation should give you some pause for consideration regarding renewals. “FRFIs should update the borrower and property analysis periodically (not necessarily at renewal) in order to effectively evaluate credit risk. In particular, FRFIs should review some of the aforementioned factors if the borrower’s condition or property risk changes materially.”

    This language suggests to me that they will be doing periodic reviews, with the interesting caveat (not necessarily at renewal) and certainly re-qualifying would be on the table. As the market falters you can be assured that there will be increased vigilance on all mortgages.

    http://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/gl-ld/Pages/b20_dft.aspx

    “Consequently, FRFIs should maintain complete documentation of the information that led to a mortgage approval. This should generally include:

    A description of the purpose of the loan;
    Employment status and verification of income (see Principle 3);
    Debt service ratio calculations, including verification documentation for key inputs (e.g., heating, taxes, and other debt obligations);
    LTV ratio, property valuation and appraisal documentation (see Principle 4);
    Credit bureau reports and any other credit enquiries;
    Documentation verifying the source of the down payment;
    Purchase and sale agreements and other collateral supporting documents;
    An explanation of any mitigating criteria or other elements (e.g., “soft” information) for higher credit risk factors;
    Proof of property insurance;
    A clearly stated rationale for the decision (including exceptions); and
    A record from the mortgage insurer validating commitment to insure the mortgage, where applicable.
    The above documentation should be obtained at the origination of the mortgage and for any subsequent refinancing of the mortgage. FRFIs should update the borrower and property analysis periodically (not necessarily at renewal) in order to effectively evaluate credit risk. In particular, FRFIs should review some of the aforementioned factors if the borrower’s condition or property risk changes materially.”

  18. @Mukluk

    “CS speaking about Amazon as if it’s obviously a bad investment”

    Of course I never said Amazon was a bad investment. I said it was a dubious investment but better no doubt than many others. How is that not entirely consistent with your claim that “nobody has a freakin clue what is going to be the best investment over the next 1, 2, 5, 10, or 50 years.”

    Actually, some people very likely do have a good idea of what’s going to pay in the next few years —Warren Buffet, perhaps. Oh, and Mukluk, who recommends AMZN as your best bet for the next 50 years. Well good luck with that folks, but don’t expect any dividends in the foreseeable future.

  19. “The reality of investment gains over the last nine years, whether in RE or stocks, is that they have been driven mostly by rapid monetary inflation and globalization. Any fool can make money investing in almost any real asset as long as the currency is being debased at a rapid clip. For stock investors, profits have been juiced by offshoring of manufacturing, which has lowered both production costs and the cost of domestic labor.”

    And faithful indexers have captured these gains. What’s your point? You’ve been on the sidelines in cash, waiting for this “irrational” market to “collapse”, haven’t you? Maybe you’re the irrational one?

    “There are two questions for the smart investor: will the current unprecedented (since Weimar Germany made way for Hitler) inflation ever end, and if so when and how abruptly. And now Trump is in the White House (guaranteed not to happen by all and sundry on HHV) will America and thus Canada rebuild the manufacturing sector?”

    What inflation? We’ve been in a period of historically-low inflation. That’s why the money’s been printed–inflation has been so low that we’ve been on the brink of deflation, and we have needed rock-bottom interest rates to prevent this. When there’s high inflation interest rates RISE. This is economics 101. The market knows this. The market understands economics. You don’t. Indexing.

  20. “Most of what they’re buying is developer time, it’s not fixed assets.”

    What software developers develop are capital asset. Software used in the existing business should appear in the books as a depreciable capital asset. It makes no difference whether that asset is a copy of MS Word that you bought off the shelf, or something you developed in house. The cost is not an expense.

  21. “It’s ridiculous to make that statement in a post advocating index investing. The reason to buy the index is because you believe the mountain of research showing that nobody has a freakin clue what is going to be the best investment over the next 1, 2, 5, 10, or 50 years.”

    Caveat emptor: I said that in response to CS speaking about Amazon as if it’s obviously a bad investment–it’s just not. In fact, it’s been a great investment at every single moment for the past 20 years because it is an amazingly-run company that consistently blows away its competition. Even at its high current price, if one had to invest in one single stock for the next 50 years, Amazon is probably close to the best choice. And yet for 20 years people like CS have misunderstood the company. To beat the market you have to be both “right” and “different”. CS is certainly “different” about Amazon–he/she sees no merit in its valuation and probably never has. Is he/she “right”, do you think? Or are the full-time money managers and finance PhDs right?

    But you don’t have to invest in one single stock, nor should you. You don’t have to overweight Amazon whatsoever… you can just buy the index and enjoy relatively steady, compounding returns. Or you can be like CS, who doesn’t understand stock valuation but thinks he/she will be among the 2% who can beat the market through active stock picking even though he/she is guaranteed to lose… i.e. the exact type of person who indexing is for but will never understand why.

  22. Investment is a capital expenditure, which cannot be expensed.

    Most of what they’re buying is developer time, it’s not fixed assets.

  23. “Can’t some of CAPEX be deducted on a schedule?”

    Any accountants here who are expert in US business tax law!

    But in general, according to Wikipedia:

    “a capital expenditure is capitalized, recorded as an asset and depreciated over time.”

  24. The idea that toasters and washing machines and crappy plastic toys will suddenly be manufactured again in the US heartland, with massive associated job gains, seems less likely.

    Yes, the crappy plastic toys from Asia and probably a lot of good stuff too, will likely continue to reach North American markets. But proposals for the mandatory repatriation of corporate profits implies a stimulus to US investment. Combine that with headlines such as “Merkel’s nightmare! United States set to decimate German car industry after Trump threats” and one sees the possibility of a real upsurge in US manufacturing.

  25. Investment is a capital expenditure, which cannot be expensed.

    Can’t some of CAPEX be deducted on a schedule? And wouldn’t OPEX be largely deductible? I thought tax treatment is part of why leasing assets (OPEX) is sometimes better than buying them (CAPEX).

  26. @CS

    And now Trump is in the White House (guaranteed not to happen by all and sundry on HHV) will America and thus Canada rebuild the manufacturing sector?

    If yest to either, then there will likely be great upheavals in many markets.

    Upheavals, yes. It seems likely to me that there will be some massive shocks in the US rather soon, starting with their political system. These may well crash the global markets, or at least lead to a chain reaction of upheavals. The idea that toasters and washing machines and crappy plastic toys will suddenly be manufactured again in the US heartland, with massive associated job gains, seems less likely.

  27. Leo-

    SFH median down $10,000
    SFH median down $37,000

    Which is it? I suspect one of those is the average, probably the second one.

  28. AFAIK, profit = revenue – expenses. … Companies can choose to increase their expenses for building the business, just as Amazon is doing.

    And what you know is not so.

    Investment is a capital expenditure, which cannot be expensed.

  29. The reality of investment gains over the last nine years, whether in RE or stocks, is that they have been driven mostly by rapid monetary inflation and globalization. Any fool can make money investing in almost any real asset as long as the currency is being debased at a rapid clip. For stock investors, profits have been juiced by offshoring of manufacturing, which has lowered both production costs and the cost of domestic labor.

    There are two questions for the smart investor: will the current unprecedented (since Weimar Germany made way for Hitler) inflation ever end, and if so when and how abruptly. And now Trump is in the White House (guaranteed not to happen by all and sundry on HHV) will America and thus Canada rebuild the manufacturing sector?

    If yest to either, then there will likely be great upheavals in many markets.

  30. If you make a profit you pay tax

    AFAIK, profit = revenue - expenses. If that equation works out to <= $0, then no profit. Companies can choose to increase their expenses for building the business, just as Amazon is doing.

  31. Their revenue is equal to their expenses though because they’re growing the business? All the profit is being spent, therefore no profit to pay taxes on.

  32. “Why would Amazon have to pay taxes on profits that they’re spending on building the business bigger?”

    Because it’s the law. If you make a profit you pay tax. If a company reinvests its profits rather than paying them out to shareholders, they still pay the tax, although they will get a CCA on the investments.

    Mukluk’s “harsh” but stupid theory of investment is that you pay an advisor who then directs you to buy everything, i.e., the good the bad and the indifferent, including Amazon, which may prove good, may not, the frackers with their $200 billion in accumulated losses (how many billion barrels of oil will they have to pump at a proft to get even?). Well if you know nothing or cannot bear any risk, maybe it’s a good strategy, although I’d save the cost of the advisor.

  33. @CS

    Why would Amazon have to pay taxes on profits that they’re spending on building the business bigger?

    Their Web services were built solely because they didn’t sit on their profits.

  34. Leo S:

    SFH median down $10,000
    SFH median down $37,000
    MLS SFH Benchmark down $6000

    Are those first two supposed to be average/median or condo/SFH? Or did the median drop another $27k while you were writing that post? 😉

  35. Also, following up on the OSFI B-20 proposed changes… they don’t apply to renewals if you don’t change financial institutions. They apply to refinancing, transfers and new borrowing.

    If you can’t get refinancing from a different institution… your rates are going up.

  36. LeoM:

    It is hard to tell what the tipping point is here in Victoria. If I had a condo that I was using as a rental I would definitely have it on the market right now. But to say I am risk adverse would be understating it.
    I generally agree with Galbraithe, as he set out in “The Great Crash” that there is no way of predicting when a bubble bursts or when a panic sets in.

    I think it is fair to say that if a large portion of the rental market only makes sense if prices continue to increase each year then there is a real possibility of panic. You dont need a declining market to cause a panic just a stable one. But that assumes some measure of rationality in the market. Rationality amongst humans never struck me as a typical trait.

  37. @ Mukluk

    CS, Amazon is very likely to be one of the best possible investments over the next 50 years. Repeatedly pointing to it like it is some sort of bad business

    I have never commented on whether Amazon is a good or a bad business. Apparently their digital services division is highly rated by users. The online sales business is an amazing phenomenon, but it could be severely challenged by other retailers going online, Walmart to name but one of many. In the meantime, it appears to make very little money.

    fundamentally [you] have no idea how companies are valued and why Amazon in particular is valued the way it is.

    Apparently there are some gaps in your knowledge about how companies are valued.

    My point, which you apparently are unable to assimilate, is that companies like Amazon are valued in part because of the craze for index investing, which means that people who know nothing about Amazon, and may not even have heard of Amazon, are nevertheless investing in Amazon. The result? Amazon’s P/E is driven to ever more bizarre heights: heights that will be maintained only as long as people go on investing in markets without regard for actual earnings.

    BRK.A has never paid a dividend…

    No, but the constituent enterprises make profits, which are taxed and the net proceeds reinvested. But with Amazon, where are the profits? Virtually non-existent in relation to the market cap., unless they are engaged in some kind of tax evasion, allowing them to reinvest profits without exposing them to the light of day and the IRS.

  38. @Leo

    “The whole point of passive investing is accepting that you have no chance to predict this and outsmart ten million other people who have dedicated their lives to it by reading a few financial statements.”

    Of course you have a chance. It’s exactly 50:50.

    Since no one knows the future, your are as likely to be right as wrong investing in Tesla or whatever.

    It is a mathematical certainty that if you invest in everything, then you’ll reap the reward or punishment that goes with making no judgment, but spreading your risk equally everywhere. But if you make a choice to invest in this or that company or asset class, then you’ll almost certainly achieve different results. Some will do much better, some much worse.

    The richest people in the world from Mayer Amschel Rothschild to John Jacob Astor, J.D. Rockefeller and Donald J. Trump all made big bets on specific investments. That’s why many billionaires go broke. They gamble and are perhaps as prone to lose as win. At one point in his career, Trump is reported to have remarked, with reference to a drunk sleeping on a New York sidewalk, “that guy is worth $900 million more than me.”

    But in fact, despite the index funds mentioned, there is no way practical way of investing in everything. For many people, the best investment they could make is in themselves, creating their own business. But there’s no index for that. Moreover, I doubt very much that there are indices for most other things, whether they be English beach huts, Swiss mansions, of the current sanctions induced boom in South Russian horticulture.

  39. HELOCS – 22% used the borrowed money for investments, 31% used the money for a renovation or repair, 28% borrowed for debt consolidation, 9% for general purchasing and 9% “other” which would include things like funding a child’s education or down payment for a home and who knows what else.

    Investments, possibly smart, depending on what is invested in.
    Renos – Mostly falls into wants not needs.
    Debt consolidation – Mostly due to excessive spending that shouldn’t have happened to start with.
    Purchasing – Same
    Other – Unknown.

    So I’d classify north of 60% of HELOC spending as a bad debt instead of good debt.

  40. SFH median down $10,000
    SFH average down $37,000
    MLS SFH Benchmark down $6000

    First time benchmark has been down significantly since July 2014.

  41. HELOCS – 22% used the borrowed money for investments, 31% used the money for a renovation or repair, 28% borrowed for debt consolidation, 9% for general purchasing and 9% “other” which would include things like funding a child’s education or down payment for a home and who knows what else.

    3.6 million of the 9.8 million homeowners have no mortgage or HELOC. 23% of HELOC holders haven’t accessed the funds yet, and only 7% have fully utilized the approved amount. The average HELOC approved is currently $168,000, but the average amount owed is only $67,000 (40%)

    Also, following up on the OSFI B-20 proposed changes… they don’t apply to renewals if you don’t change financial institutions. They apply to refinancing, transfers and new borrowing.

  42. But since you can now get free ETF buys (at Questrade at least) I didn’t see the point anymore and deposit directly there. However, if you’re already set up at TD and doing this, there’s not much point to changing.

    Yeah I’m too lazy to open another account. I like the TD integration with my other accounts.

  43. When will RE speculators/investors sell their rental properties?

    If the Toronto effect spreads across Canada, and prices start to decline in Victoria, and paper profits begin to evaporate, and the NDP impose stricter rent controls, and monthly holding costs start to exceed rental income; then will a mass exodus occur by ‘investors’ and if ‘yes’, then at what point? Will most investors hold for a year hoping for a ‘recovery’?
    Will increasing large monthly holding costs cause investors to sell?
    How long will investors watch their paper profits evaporate?
    Will they wait for the spring bump in prices?
    At what point will fear overtake greed?
    Will real estate anxiety cause panic when prices have fallen 10% or will it take a 20% drop?

    The psychology of how this unfolds will be interesting to watch, especially if the lemming theory hold true. It happened in Japan 25 years ago and in the USA 10 years ago. Canada isn’t immune to wild RE speculation followed by downturns and panic.

  44. Hey Leo, maybe those helocs are being used beneficially … sort of, kind of, in a way.

    https://betterdwelling.com/canadians-are-borrowing-against-real-estate-at-the-fastest-pace-ever/

    “Debt experts have expressed concern with the rate homeowners are borrowing against their homes. Hoyes-Michalos, one of Ontario’s largest debt consultancies, recently said more Canadians have been borrowing against their home to avoid filing for bankruptcy. “

  45. Entomologist: Questrade. ETF buys are commission-free, sells are 1¢/share min $4.95 to max $9.95. Works well for a 3/4/5 fund passive strategy where you buy frequently but have to sell to rebalance every year or two. I have no affiliation with them other than I use them as my brokerage.

    Leo: yeah, contributing to e-series and then lumping into ETFs every 3/6/12 months was recommended to me as well. But since you can now get free ETF buys (at Questrade at least) I didn’t see the point anymore and deposit directly there. However, if you’re already set up at TD and doing this, there’s not much point to changing. The 35bps of difference in MER spread over a handful of months isn’t making too much of a dent.

  46. Every time I brought up the big HELOC problem it gets explained away by people saying they are used for productive things. I think most of it is consumer spending even the stuff that is used for house renos that add a bit of value to an asset. In reality, people dig into their HELOCs to finance mostly stuff they don’t need. And using it to consolidate debt from higher interest sources may be a smart move financially, but points to a fundamentally unsustainable lifestyle so even that is a concerning sign.

  47. “Excellent link, Hawk. For those that couldn’t be bothered to read the article: “This follows a similar phenomenon where low credit-score homeowners in the United States between 2002-2006 borrowed an average of $0.40 for every $1 increase in home equity value. Which was rarely used to pay down existing debts.”

    If it walks like a duck …..”

    Agreed oops. Funny how few bulls acknowledge the massive debt bomb ticking away waiting for the final catalyst but will post daily for years and years just to defend their temporary paper profits as if they were some genius. Most will not have the stomach for a real bear market and will dump in panic.

    Another flipper losing his shirt at 67 San Jose in James Bay a block from the ocean. On #2 slash for a $40K total loss for starters.

  48. Any thoughts out there on variable vs. fixed rates? Currently in a variable at 2.3%, can convert to 5-yr fixed at 2.89%. Thanks.

    Up until last year I was convinced we’d go variable next time instead of our current 2.79% 5 year which expires next year. Now I’m not so sure. On the one hand rates are rising, so maybe fixed is better now, on the other hand I still believe the country is so indebted that any small increase in rates will immediately cause a recession and stop future rate increases so I’m inclined to go variable still. Another option is a lower term fixed. Sometimes they have some really cheap specials on 1 or 2 year fixed products. A few months ago those were going for 1.99%.

  49. It presently costs me about $9 per sale, so if I’m buying every month (which I have been- index funds), forget it.

    One option is just not to buy every month. Another is to use TD E-Funds which are free to buy (but MER is more like 0.5% instead of 0.15% like lower cost ETFs).
    Another option which I’m considering is regularly buy the E funds and once a year transfer them into low cost ETFs from Vanguard.

  50. “CS, Amazon is very likely to be one of the best possible investments over the next 50 years”

    It’s ridiculous to make that statement in a post advocating index investing. The reason to buy the index is because you believe the mountain of research showing that nobody has a freakin clue what is going to be the best investment over the next 1, 2, 5, 10, or 50 years.

  51. Don’t cad hedge- it has been shown that the hedging costs you more in mer than it is worth in risk avoidance. Also whether you know it or not, lots of your consumption occurs in usd even if you pay cad for it, so you want some us currency exposure to benefit from exchange when your consumption gets hit by it.

    Put your riskiest stuff in your tfsa (equities etc) and your least risky in your rrsp( bonds, preferred) but use both. You will pay no taxes on anything in tfsa so you want it to grow big and fast. You will pay taxes on your rrsp eventually and you want things in there for diversification but ideally you want it to capture as little of your total tax deferred growth as possible, so put the things that make you feel safe but relatively don’t grow that fast in there. There are also some withholding tax advantages for dividends that can be had in your rrsp but they are relatively minor.

  52. If you want to buy frequently, try q-trade. They offer over 100 etfs you can trade for free. Lots of decent stuff in there.

  53. I’m also a fan of DIY index investing – especially since I don’t plan to sell anything for several years, just buying and holding. However I’ll admit there’s some areas where I’d appreciate a conversation with an advisor. Like whether to CAD-hedge and what to put in a TFSA vs RRSP.

  54. Any thoughts out there on variable vs. fixed rates? Currently in a variable at 2.3%, can convert to 5-yr fixed at 2.89%. Thanks.

  55. Ok- here’s a question for investors. If you’re buying all those ETFs, what brokerage are you using that you can do it for free? It presently costs me about $9 per sale, so if I’m buying every month (which I have been- index funds), forget it.

  56. CS, Amazon is very likely to be one of the best possible investments over the next 50 years. Repeatedly pointing to it like it is some sort of bad business indicates you fundamentally have no idea how companies are valued and why Amazon in particular is valued the way it is.

    Harsh but true. The whole point of passive investing is accepting that you have no chance to predict this and outsmart ten million other people who have dedicated their lives to it by reading a few financial statements. Is Tesla a bad investment? Maybe, maybe not. Many very smart high profile investors have lost their shirt betting against them. And many people will lose big betting on them at some point. So if you have confidence in the human race as a whole your best bet is to just buy in to everything they are up to and forget about it.

    The obvious extension is that real estate is the same. Just buy in and forget about it. However the big difference is that you can’t dollar cost average into the market, so generally you will only make a couple very large buys in. If you are investing $100/month at the top of the market it’s not too bad because you will also invest $100/month at the bottom and it evens out. With a house you may invest $1,000,000 at the top and nothing at the bottom, so you may have to wait longer to see a positive return. Another difference is that because real estate markets are a bit more shallow and local, they aren’t as tied to income as stocks are and can stray away from their inherent value as shelter for longer periods of time. Overall the market is less efficient.

  57. Our assessments of the market will always be flawed so long as we’re unaware of how much actual cash buyers in Greater Victoria are plunking down to purchase properties.

    The amount you put down on a rental property does not influence the return you get from it. A bad rental is a bad rental whether it is purchased with cash or financed.

  58. Real estate agents don’t provide an inherit return, and are not so unique that only a few people on Earth can do their job as well as they can. It’s a relatively basic service which is highly susceptible to ignorance due to the fact that most people only buy or sell a house a few times in their life. Yes many people use their services, but that doesn’t mean they’re smart or right. There’re certain industries that prey on ignorance, and when it gets out of hand, I fully support industry regulation.

    I would argue the solution to this is education, not regulation. For example you can sell your house with Realtor.ca exposure for $500 on fsbo.ca. Once you get into trying to regulate people out of spending money on stuff you consider to be stupid it would never end. Some people spend $80,000 on a truck to drive to the mall with. Pretty dumb, but you can’t regulate that out. So a full commission or 2% MER may be sub-optimal, but probably better than blowing the money on a consumer good.

  59. That’s why I’ve suspected the worker bees cut off the data for August or any month a few days earlier and use the prior 30 days from say August 25.

    I don’t think so. I think they may do that a couple days ahead to essentially write their take on the market. Then update the final numbers for the month on the 1st of the next month and publish. That’s why the news release for the month doesn’t come out until noonish.

  60. CS, Amazon is very likely to be one of the best possible investments over the next 50 years. Repeatedly pointing to it like it is some sort of bad business indicates you fundamentally have no idea how companies are valued and why Amazon in particular is valued the way it is. It’s also clear you don’t understand what dividends are and how they work. Companies that pay large dividends are the worst performers. BRK.A has never paid a dividend… check out it’s 50-year price chart. I guess everyone’s a moron?

    “Spreading risk everywhere” is called diversification, it protects people such as yourself from coming to incorrect conclusions (like you have) and would have allowed you to participate in the immense value created by Amazon, FB and Tesla, even though you have absolutely no understanding of why these companies are so valuable. You’re actually a great object lesson in how indexing protects the ignorant investor from themselves.

  61. Something like 1/3 of money in equities is passive. There’s a point where if enough money flows into passive investment, then who sits on boards to oust bad CEOs or make other strategic decisions? By definition, passive managers can’t hold an opinion.

    Doesn’t really matter if the index funds hold “bad” stocks, as long as they hold all of the stocks. As long as the global economy keeps growing, index funds will do just fine.

  62. I have been reading this blog since 2007 when I was in school and may run into Marko many times….. first post here.

    extremely helpful and valuable discussion on topics including housing /realtors fees/mutual funds’ fee.
    Also, I have purchased 3 and flipped 2 downtown condos and brought a old box in Gordon Head 3 years ago- Thanks to Marko’s advice, it’s been like winning a lottery my home purchasing ….

  63. @ Introvert:

    Nice poster. Has a touch of art deco — the last gasp. WWII seems to have killed the movement.

  64. @ Barrister:

    Can someone explain to me why Facebook common shares are worth anything considering that it is highly unlikely that any of the profits will ever be paid to the common shareholders.

    Part of the reason is that so many people think that the best way of investing is to spread risk as widely as possible so they buy index funds, which means they are buying FB, AMZN, and TSLA (and many worse prospects beside, e.g., US oil frackers with accumulated losses to day of $200 billion) even though those companies pay little or nothing in dividends and seem to have no prospect of paying significant dividends in the foreseeable future.

    This suggests there is something seriously wrong with the idea that spreading risk as widely as possible is necessarily a good investment strategy. It may be a strategy that, if widely enough adopted, creates loony bubbles in stocks like FB: bubbles destined to implode and take down markets worldwide.

  65. Re: the environment

    I don’t know about you but I would like to think that my grandchildren and great grandchildren get a kick at the can.

    Me too. Sadly, the issue has been politicized, with the result that it is, in the public domain, and even to some extent in the world of science also, no longer a scientific question. Then you get alleged Nobel Prize winning climate scientists deploying their supposed environmental expertise as a qualification for for political office. Meantime the public engage in idiotic debates on what are in reality abstruse technical questions about which the vast majority of the public have no real knowledge.

    It seems to confirm the claim that when everyone has a university degree no one will no anything—which unfortunately will not stop nearly everyone from pontificating on what they don’t understand.

  66. To the extent we are destroying the planet it is via over consumption, not via the existence of the stock market.

    It’s via capitalism, basically.

    Stick a fork in it, this bloated pig is cooked.

    Said the guy who’s said some version of this every day for years now.

    If you don’t know how they financed it you have no idea whether it is cash flow negative. For all we know they paid cash. In which case it might be a lousy investment, but it won’t be cash flow negative.

    As I’ve said before, this information is the holy grail. Our assessments of the market will always be flawed so long as we’re unaware of how much actual cash buyers in Greater Victoria are plunking down to purchase properties. My suspicion is that there are a lot more high-net-worth folks buying here compared to elsewhere.

    My tenants just gave me notice for the 2 bedroom suite in my basement. They were paying $1400. I wonder if I should try my hand at AirBnB, or try to find new tenants for $1500.

    If it were me, I’d do the latter. But keep us posted either way!

  67. My tenants just gave me notice for the 2 bedroom suite in my basement. They were paying $1400. I wonder if I should try my hand at AirBnB, or try to find new tenants for $1500. I just got a mortgage increase notice – raised by $80/mo. Thoughts?

  68. “… $3k on a custom website when you can buy a better template than the custom site for $49 USD…”

    $3k is a dirt cheap site, but people drop thousands on sites because it saves them money (via time). You don’t get a working site for $49, you get a bunch of files and who knows how much time and frustration before you have a site you’re happy with.

    About overpaid athletes, the comparison is erroneous. I’m not the one paying them millions/year. I don’t pay them a cent, so I don’t care what they get paid. Corporations pay them, and do so because they make mountains of cash off their ‘services’. Real estate agents don’t provide an inherit return, and are not so unique that only a few people on Earth can do their job as well as they can. It’s a relatively basic service which is highly susceptible to ignorance due to the fact that most people only buy or sell a house a few times in their life. Yes many people use their services, but that doesn’t mean they’re smart or right. There’re certain industries that prey on ignorance, and when it gets out of hand, I fully support industry regulation.

    Example: there’s plenty of phone, email and door to door scammers out there. You could say “well I guess millions of people see the value in being scammed” or “you can’t save stupid people from themselves”, or you could admit that a little legislation and a little enforcement can do a lot of good.

  69. Could someone explain why someone would buy a place( 912 Woodhall Drive) for $850K & then rent it for 2800 a month(with a property management company)? I get around 1600 a month cash flow negative(not including any maintenance). Well, besides speculation…

    If you don’t know how they financed it you have no idea whether it is cash flow negative. For all we know they paid cash. In which case it might be a lousy investment, but it won’t be cash flow negative.

  70. @ Bearkiller

    “we have at least another 100 years before the planet is destroyed.”

    You may know something about investing in real estate but I strongly suggest you stick to that and let the scientists work on our carbon addiction. I don’t know about you but I would like to think that my grandchildren and great grandchildren get a kick at the can.

  71. Hawk: “Perhaps even more concerning was of the total $314 Billion, the vast majority of it was used for non- business related reasons. As of June 2017, $266 Billion was used to basically fund fancy new cars, boats, renovations and various other unproductive things. This is a 4.9% increase from the same month last year, or a $12.49 billion increase.”
    <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<

    Excellent link, Hawk. For those that couldn’t be bothered to read the article: “This follows a similar phenomenon where low credit-score homeowners in the United States between 2002-2006 borrowed an average of $0.40 for every $1 increase in home equity value. Which was rarely used to pay down existing debts.”

    If it walks like a duck …..

  72. I read somewhere that the average Canadian equity mutual fund manager actually slightly outperforms the index on a before fee basis. However their outperformance is not enough to pay the MER so you still come out ahead if you invest passively very cheaply.

    Exactly the same with real estate commissions. If on average, hypothetically an agent can sell a home for $1,000,000 with $33,000 in commission (commissions may vary) compared to an average owner selling for $995,000 you are still ahead selling it yourself.

    Since 2007 I’ve bought about 20 pairs of prescription eyeglasses online. Is it better to buy in store? Yup, because you can try them on. Twice (out of 20 or so times) I’ve received online glasses and been like, damn, this doesn’t look good on my fat oversized head. The thing is the online stuff 1/10th the price and the same quality so the 1 in 10 chance of the glasses not looking great, who cares, just order 8 more and I am still ahead.

    I just don’t really get people…..they line up at Costco for gas but they drop 30k on real estate commission, 2% MERs, $600 on prescription glasses (two piece of plastic and frame made in China), $3k on a custom website when you can buy a better template than the custom site for $49 USD, etc.

    If you have $25 million yea maybe it makes sense to have the 2% MER guy that has a corner office in a glass tower so you can spend more time on your boat, but if you are trying to get ahead in this day and age not sure how you do that paying fees the average Joe supports.

  73. AZ, someone who listens to Bearkilla loses $1600 a month buying at the top. Townley and Cadillac both slashed as well. Not every school boy passed math class.

  74. If a company always thinks of something better to do with the money than my shares become meaningless pieces of paper unless I can find a bigger fool to buy them from me.

  75. FB might get to the point where they start paying dividends to common shareholders. But at this point their money is probably better spent on growth opportunities. If enough people have enough faith in their ability to grow, then the stock is priced accordingly, even with a high forward P/E ratio. A company paying dividends is saying “We can’t think of anything better to do with this money, so here have some”.

  76. Could someone explain why someone would buy a place( 912 Woodhall Drive) for $850K & then rent it for 2800 a month(with a property management company)? I get around 1600 a month cash flow negative(not including any maintenance). Well, besides speculation…

    Also something I haven’t see, 3 offers have “collapsed” for listing on MLS i have been watching.

    940 Leslie Dr (No longer says “Deal collapsed” in MLS description)
    213 Cadillac Ave
    1850 Townley

    Interesting flip to watch : 3178 Quadra St
    Paid 340k 1.5 years ago, Listed at $769k

  77. Can someone explain to me why Facebook common shares are worth anything considering that it is highly unlikely that any of the profits will ever be paid to the common shareholders.

  78. Rising rates next week and the next month after etc until stress tests are at 6%. Even the FOMO can’t get the core median up the last 8 months with lowest rates in history. Stick a fork in it, this bloated pig is cooked.

  79. Even the most ardent doomsday communist/environmentalist are saying that we have at least another 100 years before the planet is destroyed. So far the environmentalist bears have the same track record as bears on this blog which is absolutely abysmal. The fact of the matter is that even if these wackos are right (100% guaranteed they aren’t) we’ll be dead before it matters. I still miss the ozone layer.

  80. Marko understands the math and limitations of analysis (‘good advisor, etc”), while I would say that VicInvestor maybe shares a different understanding of the data. Hence why investment management is still around. That book Vic Investor referenced contains a Vanguard study to support the value of an advisor that was fairly easy to track down. Let me break down – of that “3%”

    1 40 points comes from paying low fees
    2 35 points come from rebalancing
    3 150 points come from behavioral coaching (i.e. not selling)
    4 0 to 75 points comes from asset location (i.e. don’t buy all one country)
    5 0 to 110 bps comes from spending strategy (withdrawal order)

    gives a range between 225 and 410 points or 2.25 and 4.1 % or “about 3%”.

    1 The 40 points you get for free and more by not paying the investor and just buying indices.
    2 The 35 points from rebalancing are free. 100 – your age = equities will get you 90% of the way there. Google Canadian couch potato if you need more details. Basically, buy more more of your relatively poor performing stock with your savings each year to balance your portfolio for a relative pittance in transactions fees.
    3 Dont’ sell. Ever and buy diversified investments over time and not on emotion. There I just replicated half the value of every advisor on the planet (150 points)
    4 Diversify geographically by buying VCN and VXC. There – two etf’s with 100% cap weighted geographic coverage. That will get everyone started. (up to 75 bps)
    5 This one is a bit tricky but it is a one shot deal and you don’t need to figure this our until you retire anyways. It isn’t worth paying a fee every year for and only rich folks with all three TFSA/RRSP/taxable accounts really benefit from this anyways. If all you have are 2 etf’s in an
    RRSP, this is much simpler to do.

    One of the worst parts of this is that none of this detail is referenced with the claim. The financial advisory industry will abuse the Vanguard reference, the main source of both low fee indices and that 3% stat to lure folks into thinking that they can only get that 3% from an advisor through insider info or “connections” stock picking or whatever. None of that 3% is related to any of that. Paying low fees, rebalancing regularly and not selling and owning in more than your home country are really simple and the only things you need to know to manage your own portfolio and can be done absolutely for free by ANYONE.

    The last one – spending order is maybe worth paying someone for but only once, when you retire. This one involves taxes and it probably makes sense to speak to a CPA for this instead anyways.

    There – one post, up to 4% per year saved for everyone. As usual, the investing industry wants you to pay them 1-3% for something you can do yourself with no effort for less than 1/20th the cost.

    Read that little book and manage your money yourself. Or end up retired with less than half the capital you would otherwise have because you believed in the benefits of “active management”. You read that right – the difference between a 3% fee and a 0.2% fee on indices is roughly half your portfolio value over 50 years. Fact.

  81. It only adds about $300 a month to the condo mortgage.

    Something that I’ve seen more of this year are mature home owners buying a condominium to live in and then renting out their house as a month to month or vacation rental. As well as those with well paying jobs like a policemen or nurse buying a second condominium for rental purposes.

    So the next time you get stopped at a road check, the chances are that that policeman with his nose in your car window is a real estate millionaire.

    Victoria is a city full of real estate millionaires. Even the pop bottle lady that doesn’t speak English on my street but owns a house is a millionaire. It has become surreal. And that’s why I intuitively think that this fantasy land of house prices can not continue. There are people that are shop lifting food, so that they can survive, that live in homes worth hundreds of thousands if not a million.

  82. John Dollar:

    As always thank you for an insightful look at the numbers. I am not sure what to make of the large prices increases when it comes to condos.

  83. Last day of the month and it is interesting to calculate some of the numbers based on almost a full months worth of data and then compare that to what the board publishes. And that’s okay as I understand that the worker bees need time to calculate the numbers and then have the president write his summary. That’s why I’ve suspected the worker bees cut off the data for August or any month a few days earlier and use the prior 30 days from say August 25.

    But it doesn’t matter much the data is the data. For houses in the core, there has been a seasonal decline from the spring. A pull back in prices of under 5%. I wouldn’t call this a correction because it is too small and too early to call.

    Although condos in the core have rolled through the spring and through the summer with no seasonal decline in prices. And that’s what you would expect for a “hot” market. Strong sales and prices.

    But if you are just watching prices then you’re too late to take advantage of any price shifts. So what about the leading indicators for the market that give a clue to where prices may be in 90 days from now?

    For houses in the core they are marginally higher moving the market more into a balanced position from a sellers for both houses and condos in the core. And that suggests to me that the next 90 days are going to be similar to the last 90 days with stable to declining prices. Both active listings and sale volumes declining but months of inventory netting out an increase.

    So what does this mean for the year. Annual house prices will still show an increase from last year between 10 to 15% and that’s down from the annual 2015/2016 increase of 19%.

    Condos in the core show a more respectable annual increase likely between 15 to 20% which is up from 2015/2016 when the increase was 11%

  84. The thing about a balanced portfolio is how do you do it? German stocks, Russian stocks, US stocks, Canadian stocks? And which stocks? The Dow, the S and P 500, small cap, large cap?

    You don’t have to choose with index funds like VCN and XAW, as they get everything in proportion to cap weight. XAW for instance covers the equities markets of the world (except Canada), and you get Russia, US, and 40+ other markets, weighted by their cap. And individual stocks in those markets also weight by cap. Seems pretty simple and gives you broad equities market coverage so you don’t have to choose.

    Throw in Canadian bonds (also indexed through something like ZAG) at a desired fixed:equities asset allocation, and you’ve got a balanced portfolio with a return that will beat almost every single advisor’s equities+bonds performance in the long term when the difference in MER is factored in.

    How much of the world’s economy is outside of the equities and bonds markets? I’m sure there are opportunities in commodities, RE, and cryptocurrency. But from my understanding some of those are more speculative and/or tougher for retail investors to get into. If I had a high 7-figure net worth, I’d probably talk to an advisor about those, but it’s likely not worth it for the majority of people 🙂

  85. Buying random individual stocks might have the same expected return as an index fund but they wouldn’t be diversified, meaning your risk and variance are much, much higher. Index funds are diversified. You don’t need to own pork bellies, you just need to own a diversified mix of productive assets (i.e. stocks, bonds, income-generating real estate) that are essentially guaranteed to increase if you hold them for long enough. There are a zillion acceptable approaches that achieve this, but people always seem to crave the approaches that fail to.

    You can put your money in a Vanguard Total World Fund and now you own both Google and Ruritania. Or you can pick the appropriate Vanguard Target Retirement fund, pay 0.13% and get a diversified, balanced mix of global stocks and bonds and never have to think about it again.

    https://investor.vanguard.com/mutual-funds/target-retirement/#/

    https://personal.vanguard.com/us/funds/snapshot?FundId=3141&FundIntExt=INT

  86. The average investor is absolutely horrible at investing and makes bad decisions constantly on a whim.

    I thought stocks followed a random walk. So surely investing on a whim, like picking stocks at random, should be about as good a strategy as any. You may, indeed, do worse than the average. But then if you’d picked AMZN or TSLA by chance, you’f have done OK — so far. Though good luck with those in the future.

    The thing about a balanced portfolio is how do you do it? German stocks, Russian stocks, US stocks, Canadian stocks? And which stocks? The Dow, the S and P 500, small cap, large cap? Then there’s, RE in Victoria, RE in Germany, Ruritainia or Brazil. Plus gold, Silver, platinum, lithium or cobalt, or funny money, anyone? And what about pigs, poultry, soybeans and pork bellies? So how can anyone actually have a balanced portfolio?

    As for ethical investing, I agree with Intro, everything has political implications. If you invest in bomb factories and rockets, then you’ll feel things are going well for you when Donald Trump decides to what he calls “bomb the shit out of” someone. Or if you invest in big pharma, you’ll likely support the government if it legislates universal vaccination against nail-biting. And if you invest in RE, you’ll cheer rising house prices that make life miserable for young people wanting to set up a home of their own.

    The only thing, really, is to invest in oil. Then you’ll be in favor of driving your own car, taking a holiday in Hawaii, plus you’ll have a share in a company that favors the carbon tax (BP, EXXon), and owns windmills and invests in alt energy storage (BP both). Meantime, paying a dividend, unlike most of the stocks that have driven indexes sky high.

  87. What I’m interested in is not whether the adviser can beat the average consumer investor, but whether they can beat the market. I can match the market myself essentially for free, so the only benefit to pay someone 1% is if they can consistently beat the market by more than 1%.

    I read somewhere that the average Canadian equity mutual fund manager actually slightly outperforms the index on a before fee basis. However their outperformance is not enough to pay the MER so you still come out ahead if you invest passively very cheaply.

  88. “It’s a capital allocation mechanism that, so far, is tending toward the destruction of a livable planet.” – Introvert

    To the extent we are destroying the planet it is via over consumption, not via the existence of the stock market.

  89. We have now established that financial guidance tends to pay off somewhere in the ballpark of 2% to 3% a year.

    That is compared to the average though. The average investor is absolutely horrible at investing and makes bad decisions constantly on a whim.
    https://beta.theglobeandmail.com/globe-investor/globe-wealth/why-the-average-investor-is-so-bad-at-it/article30728320/?ref=http://www.theglobeandmail.com&amp;

    What I’m interested in is not whether the adviser can beat the average consumer investor, but whether they can beat the market. I can match the market myself essentially for free, so the only benefit to pay someone 1% is if they can consistently beat the market by more than 1%.

  90. True, but at least with a GIC you’re one degree removed from evil, as opposed to deliberately choosing evil yourself.

    Introvert, you can always get an advisor and direct them to invest in a broadly diversified group of equities and bonds in industries that you support and are not acting unethically. As Hawk mentioned, someone like Elon Musk is also dependent on the same stock market to try to revolutionize transport and renewable energy and AI for the good of humanity. Doesn’t mean that Tesla stock is a good investment, but you can assemble a group of companies that you agree with and invest there.

    Handing your money to the bank in the form of a GIC is in no way less “evil” than investing in the global economy directly. You can do better.

  91. Regarding the benefit of a fiduciary financial advisor:

    “We have now established that financial guidance tends to pay off somewhere in the ballpark of 2% to 3% a year. Although those numbers may seem small at first blush, anyone familiar with the marvel of compounding understands the enormous power of such outperformance. If financial advice really does work, the effect of following good advice over time should be substantial. Indeed, the research suggests that very thing.”

    Regarding fees, 2% is excessive. You should be in the 1-1.5% range at most.

  92. The high fee investment advisory business is dead.

    About as dead as the full commission real estate business.

  93. On the topic of active investing, it’s not that you can’t beat the market, people certainly have, it’s that an individual investor mucking about in their spare time trying to beat the market doesn’t have much of a chance there because there are tens of thousands of people and computers that spend 12 hours a day analyzing the same stuff you are looking at casually. You can’t beat them at that game except by luck.
    Of course people have beaten the market over the long term, but it is getting more difficult. See for example Warren Buffet who attained his best returns when information was much harder to come by and all of his insane amount of research paid off because he was able to discover hidden gems that other people hadn’t noticed.

    Mukluk has the best summary here, so I’m not sure why I’m commenting as well. https://househuntvictoria.ca/2017/08/29/aug-28-market-update/#comment-31313

    The only risk to that is a cessation of economic expansion worldwide. Could happen as we run into environmental limits, but don’t bet against human ingenuity.

    It will feel scary. As long as you keep you job this will be an investment opportunity not something to be overly feared.

    And another thing. The next big crash will be different than the last, and the majority will panic and pull out of their investments because this time it’s different and this time the whole system will collapse. It very likely won’t be different, and the system will recover, but sticking to that conviction will be very difficult. This is where a good adviser has value, they will talk you back from the cliff when you want to sell it all at the market bottom.

  94. Good advisors are actually worth their fees. Read this book on behavioral finance:

    What is a good advisor? I just don’t see how a good advisor can make up the MER. I’ve been investing for 10 years so that’s 2% MER saved each year compounded. That is a lot of money for an advisor to make up and probability just doesn’t support it no matter how smart they are.

    Secondly, do capital gains factor into the equitation when it comes to active management? If you have $100,000 worth of stock A paying 4% dividend and then you sell it, pay capital gains, don’t you have <$100,000 after tax to re-invest into stock B paying 4% dividend? Obviously capital gains will always catch you in the end but seems like you would derive the most benefit if it caught you at very end, not a bunch of times in the middle.

  95. How many billionaires won their money in a casino?

    How many billionaires earned their fortune in Victoria real estate?

    How many billionaires made their money investing in the stock market?

  96. “The stock market is a capital allocation mechanism, nothing more.

    It’s a capital allocation mechanism that, so far, is tending toward the destruction of a livable planet.”

    How do you think companies with new products and inventions that change the world for the good raise money ? Out of thin air ? Totally clueless in Golden Head.

    “Also, I prefer not to make dirty money and then use that money to advocate against making dirty money.”

    All your house paper profits are built on dirty money out of Asia. You’re part of the problem.

  97. Why do first-world democratically-elected governments permit companies that are “evil” to operate in 2017?

    I’ve wondered that myself.

    Calling the stock market a casino frankly speaks to your faulty understanding of how the economy works.

    How the economy works: companies lobby First World democratically elected governments to relax environmental and labour laws so that they, and their (completely innocent!) investors, can earn more profits and returns.

    This in turn probably explains why you seem to believe that withholding your investment dollars has any effect on the success of “evil” companies; it doesn’t, that’s not how these things work.

    I never said that I think my choices are making a big difference, but OK…

    The stock market is a capital allocation mechanism, nothing more.

    It’s a capital allocation mechanism that, so far, is tending toward the destruction of a livable planet.

    If you’re political, invest where your dollars expect the highest risk-adjusted return, then use the proceeds to fund your charity or advocacy interests.

    Everything is political. Your “nonpolitical” approach to investing is itself a political act.

    Also, I prefer not to make dirty money and then use that money to advocate against making dirty money.

  98. I say follow Bearkilla’s advice and buy your ass off, max out your HELOC, borrow everything you can from Ma and Pa and get out there now before there are no more houses left anywhere and all the free money is gone.

    Jobs paying hundreds, possibly thousands an hour will never ever end because they just won’t. Everybody wins in the game of life and real estate ! Bearkilla even guarantees it because he went to school and owns a big truck too. 😉

    Loans Secured Against Canadian Real Estate Hits $314 Billion

    “Perhaps even more concerning was of the total $314 Billion, the vast majority of it was used for non- business related reasons. As of June 2017, $266 Billion was used to basically fund fancy new cars, boats, renovations and various other unproductive things. This is a 4.9% increase from the same month last year, or a $12.49 billion increase.”

    http://vancitycondoguide.com/loans-secured-against-canadian-real-estate/

    :large

  99. I’m going to give everyone here some unsolicited advice… Do not take any financial advice from posters on this blog. Just look at the real estate track record.

  100. @nan:

    I disagree that investment advisory or active management are dead. Like you, I have read the empirical evidence showing that passive buy and hold performs as well as active investing. The problem, however, is that most average people are unable to “behave” properly. Human psychology will ultimately lead them to make poor investment decisions, no matter how well-informed they are. Thus, we still need someone to hold our hands. Good advisors are actually worth their fees. Read this book on behavioral finance:

    https://www.amazon.com/Laws-Wealth-Psychology-investing-success/dp/0857195247/ref=sr_1_1?ie=UTF8&qid=1504138433&sr=8-1&keywords=The+Laws+of+Wealth%3A+Psychology+and+the+secret+to+investing+success

  101. “Evil”? That’s a pretty strong word. Why do first-world democratically-elected governments permit companies that are “evil” to operate in 2017?

    Calling the stock market a casino frankly speaks to your faulty understanding of how the economy works. This in turn probably explains why you seem to believe that withholding your investment dollars has any effect on the success of “evil” companies; it doesn’t, that’s not how these things work. Withhold for emotional reasons, sure, but don’t think you’re doing the company harm.

    The stock market is a capital allocation mechanism, nothing more. It rewards those who defer their consumption and instead invest their capital in it, and rewards one quite handsomely and predictably if one understands diversification and reversion to the mean. If you’re political, invest where your dollars expect the highest risk-adjusted return, then use the proceeds to fund your charity or advocacy interests.

  102. Environmental and social damage aside, the stock market is a casino.

    I don’t play the casino.

    The only gambling I’m comfortable with is investing in Victoria real estate over the medium- and long-term. Good money can be made, at times, over the short-term, but that’s not my game.

  103. Barrister,
    We sold a property similar to yours privately. We approached a realtor friend (family friend) regarding listing. He was quite frank and said that there is only a handful of buyers that would, or could, buy it for its underlying value and we didn’t need to pay him for the service. Consider contacting the developers active in your area, not the sleazy one, and see what kind of interest they may have. No advertising to hurt a listing if you ultimately go down that road.

  104. There are companies and sectors that are too egregious to own. For instance I would not invest in thermal coal or coal fired electricity even if I thought the short term investment prospects were good as that sector MUST die IMO.

    Glad to hear.

    On a practical level it is difficult to determine the impacts of your investment.

    This is largely by design, I would argue.

    If you plunk your money into a GIC you don’t know if the bank is going to lend your money to something you support or something you hate.

    True, but at least with a GIC you’re one degree removed from evil, as opposed to deliberately choosing evil yourself.

  105. “Toronto is down 20% since the spring, but that is barely a correction. Will TO continue down or will it rebound?”

    My Toronto real estate buddy says the condos are selling downtown but Richmond is dead as can be, and the burbs are extremely slow.

    Massive debt bubbles unwind in stages, and TO and Vancouver’s first pullbacks/dead cat bounces are the warning shots as rates begin to rise several more times in the next year, and new OSFI rules stick the dagger in and twist.

    Toss in the new NDP housing surprises and we’ll have a very interesting winter as the slashes and relists continue to stack up.

    How does the Holly St guy think about his new neighbor getting in $125K cheaper ? That’s one hell of an ouchy on the wallet and an extra 5 years of payback to the bank. Look out below suckas. 😉

  106. On investing, the only thing propping up the investment advisory business is the gap between those that understand the data on active management and index investing and those that do not.

    The high fee investment advisory business is dead. There are dozens of good books on this out there for those that want to learn but the simplest one is this:

    https://www.amazon.ca/Little-Book-Common-Sense-Investing/dp/0470102101/ref=sr_1_1?s=books&ie=UTF8&qid=1504125607&sr=1-1&keywords=little+book+of+common+sense+investing

    Some folks outperform with active management but some folks win the lottery too. It doesn’t mean you should buy a ticket.

    Buy, hold and prosper.

  107. “Ask yourself if it was worth waiting 5 months to save about $25,000 on the typical house in the core. Money being so cheap, I would guess most people would say it wasn’t.”

    For the permabears still holding strong since the blog was founded – ask yourself if it was worth waiting 10 years for an opportunity to pay an extra 40% on the typical house in the core.

  108. perhaps crashes are now a thing of the past. Toronto is down 20% since the spring, but that is barely a correction. Will TO continue down or will it rebound?

    Single family homes are still up YOY in TO and townhomes/condos are up substantially up year over year.

    The 20% applies to SFH and off an extremely short-lived peak/spike.

  109. CS:

    Twenty percent is just barely a correction unless you happen to be a young couple that had bought in the spring and you have just seen all your hard earned down payment fly out the window.

  110. @ Barrister

    “But you are correct that a market crisis or a bursting of the housing bubble might well half the price of the house.”

    perhaps crashes are now a thing of the past. Toronto is down 20% since the spring, but that is barely a correction. Will TO continue down or will it rebound?

    There’s a plausible piece, I thought, by Charles Hugh Smith, arguing that monetary inflation will continue without limit to enable the globalist Money Power to buy everything in the world.

    The only thing I could see that weakened the author’s case was that his essay ends with a request for financial support. But if the author is indeed convinced that monetary inflation will continue unabated, thus ensuring continued zero or below zero real interest rates, then he should be able to pile up an unlimited amount of money, without need of donations, by sensible leveraged investments in stocks and property.

  111. House prices in the core remain unchanged from July despite the economic indicators suggesting a bullish market.

    Active listings for August have been stable for the last four months. What has changed are New Listing. They are down from July and June, but so are house sales. And that seems to be more of an affordability issue rather than one of inventory as there are more houses for sale today than in the spring.

    At this point we are sitting at a little over 3 months of inventory of houses for sale (indicative of a sellers market) with new listings outpacing sales at the rate of 1.6:1 ( cusp of a sellers/balanced market) and the average days-on-market at 24 (cusp of a seller/buyers market)

    The market trend for houses in the core appears to be moving from an overall sellers to a balanced market with stable house prices that are still subject to small seasonal fluctuations of around 2
    percent.

    If you had gotten caught up in the maelstrom of bidding wars in the spring, your house is likely worth a little less today than it was in March but that’s mostly due to seasonal fluctuation.

    The hottest months of the market are now over and we coast into the fall and winter markets so I would expect the current trend for increasing months of inventory, new listings/sales and DOM to continue and by the end of the year all of these indicators will be in balanced territory.

    Ask yourself if it was worth waiting 5 months to save about $25,000 on the typical house in the core. Money being so cheap, I would guess most people would say it wasn’t.

  112. “In practice I don’t think individual investment choices are a very powerful tool to change things for the better.”

    I think it was the Irish playwright, George Bernard Shaw, who recommended investing in brothels on the ground that nobody wanted to invest in brothels so the return on capital was higher than on more respectable businesses.

    And I recall from the T-C of many years ago some scandal about skid-road rental properties in Victoria that, it turned out, were owned by a company of which a cousin of the Queen, I forget his name, was a director.

    So by foregoing investment in the oil sands or whatever, you merely enhance the incomes of those without your scruples!

  113. You can get the equivalent of a best-in-class advisor by buying a Vanguard Target Retirement Fund. Pop in your Target and you’ll instantly get a diversified, rebalanced, low-cost portfolio that will beat 98% of active managers over the next 10-40 years.

  114. Consider studying, too, the relative damage your investments are doing to people and to the environment.

    I struggle with this. In theory I agree. In practice I don’t think individual investment choices are a very powerful tool to change things for the better. Better to just plunk your money into an index fund and work more concretely to improve the planet in other ways like joining or supporting an organization that you support, volunteering for a cause you support.

    That said I do own some individual stocks in addition to my index/index-like investments. There are companies and sectors that are too egregious to own. For instance I would not invest in thermal coal or coal fired electricity even if I thought the short term investment prospects were good as that sector MUST die IMO.

    On a practical level it is difficult to determine the impacts of your investment. If you plunk your money into a GIC you don’t know if the bank is going to lend your money to something you support or something you hate.

  115. Fee-only advisor that would recommend a strategy and then yearly checkup could work out. But I’m firmly in the self-service camp at anything under high 7-figure net worths. IMO best to read up on index investing.

    Anyone know what 1635 Kings St went for?

  116. “the stock market, the real estate market etc. all have a >98% chance of being up over any given 10-year period, and a 99.9% chance of being up over a 20-year period. If you can hold that long you’ll never lose. And if you’re dollar-cost averaging over time, i.e. taking part of your earned income each year and making regular additions to your portfolio, you mitigate the risk even more. If you were dollar-cost averaging from say 2006 to 2010 you’d have experienced one of the worst market crashes in history, yet you would have made your money back by 2011 and you’d be massively, massively up thereafter. The fear of another 2008 is not warranted. ”

    On the big picture I completely agree with Mukluk. By far the best strategy for most investors is to dollar cost average (i.e. invest on a regular schedule) into stocks using a low cost investment vehicle like broad index ETFs, cheap index mutual funds like the TD e-funds, or one of a relative handful of active mutual funds in Canada that charge low enough management fees to justify the price. Don’t check your holdings all that often and don’t tweak your strategy much at all except perhaps as you approach retirement.

    A couple of caveats:
    1) Actual negative returns over 10 and 20 year returns are almost as rare as Mukluk said, but 10 and 20 year returns below inflation are not all that rare in Canadian and US market history and these are two of the best performing markets in the world over the long term so have reasonable expectations and be prepared to stick to your strategy
    2) Returns going forward are likely to be a bit lower than in the past if our low growth, low inflation economy persists. Perhaps 5-6% rather than 7-9%
    3) Another 2008 is bound to happen, although the precise sector that blows up the economy and the market will probably be different. It will feel scary. As long as you keep you job this will be an investment opportunity not something to be overly feared.

    Also the media constantly cheers the stock market going up. Ignore this. If you are under about 55 and saving for retirement you should be rooting for the stock market to go down so you can invest more money at lower prices.

  117. Consider studying, too, the relative damage your investments are doing to people and to the environment.

  118. Entomologist: sure, that’s called “front running” and it’s illegal. But even if it weren’t, the fact is your local dope at Edward Jones or your bank isn’t doing that or anything close to that. They don’t have any tricks. They take your money and invest it stupidly and take a large chunk of your money to do it. They add nothing of value. You might start to get value from financial advice once you get into the ultra-high net worth (UHNW) realm, i.e. a net worth of $30 million, when you can access elite money managers and international asset management firms. But even then, hedge fund managers, the supposed elite rockstars of the asset management world, have absolutely been slaughtered by the indexes the past 8 years. Of course, they personally always come out well because of the large fees they charge regardless of whether you get your butt kicked or not.

    Don’t be overwhelmed by index investing; just understand that:

    1) there’s no free lunch, market returns will inevitably come with temporary swings;
    2) whatever downsides you think indexing has are not repaired by an active manager;
    3) research and economic theory have proven that active trading of any asset costs you money in the long run, as does active management;
    4) the same research and economic theory has proven that the best approach bar none is to simply buy and hold assets until you’re ready to retire and liquidate them. Do NOT pay attention to whether they are up or down over any particular time period because it just doesn’t matter–the stock market, the real estate market etc. all have a >98% chance of being up over any given 10-year period, and a 99.9% chance of being up over a 20-year period. If you can hold that long you’ll never lose. And if you’re dollar-cost averaging over time, i.e. taking part of your earned income each year and making regular additions to your portfolio, you mitigate the risk even more. If you were dollar-cost averaging from say 2006 to 2010 you’d have experienced one of the worst market crashes in history, yet you would have made your money back by 2011 and you’d be massively, massively up thereafter. The fear of another 2008 is not warranted. The fear has essentially been a large part of why investing in the stock market has been such an incredible opportunity the past 8 years. Even if a crash does return you will be fine–if you just buy, hold, and periodically add to your holdings. The fees charged by an active manager are like a miniature crash every single year, one that adds up to a loss of much, much greater magnitude over the life of your investing career.

    It’s basically impossible to beat the index returns through active management, market timing etc. and yet people always want to. The same thing that looks dangerous in the short run, i.e. index fund investing, becomes the single surest, safest thing you can do if you can hold. Even 5 years has historically been enough to nearly guarantee a win.

  119. CS:

    I have already been offered 3 mil by a rather sleazy developer who has a track record of unfortunate incidents happening to historical houses. The property is worth considerably more without the house than with it.

    But you are correct that a market crisis or a bursting of the housing bubble might well half the price of the house. Sadly, it would devastate the economy of Victoria. But I agree that the situation has potential for a major disaster.

  120. The investment discussion is interesting. I have been considering moving my money into index funds. I find the thought overwhelming and feel too unqualified to make those trading decisions though.
    Has anyone had any good experiences with a financial advisor? I’m contemplating hiring a fee for service advisor but don’t know where to start.

  121. Mukluk and Garden –

    I kind of agree with you both, and am not a big MF guy, and will stop talking on this subject. But I do have a Tangerine index fund account (MER 0.9%) that I’ve found worthwhile, and do think there’s some benefits to active accounts in big crashes. Like it or not, institutional investors have access to info that us plebs do not. I recall a broker telling me just how it easy it was to make money as an investment bank broker, such as when they know with near-certainty that other firms are about to make large purchases of certain stocks (to keep their indexes matching the benchmark, e.g.), and tricks like that.

  122. Too often though, active managers cut what they perceive as losses that are actually temporary dips. Active managers may (I’m not sure, frankly) have done better in 2008 than an index fund, but they have been absolutely slaughtered ever since in a market environment where gains outweigh losses and selling on dips has been the exact opposite of the optimal strategy.

  123. Entomologist

    What methods does an actively managed trader have to cut losses? If they sell a given stock/asset class what happens when they’re wrong and it rebounds to greater highs?

    Stop-loss orders are antithetical to a long-term passive index strategy. If you hold the whole market, you want to hang on to those index funds to catch the (historically) inevitable upswing. Things might be different when you’re in retirement and want to draw down, but for those with a few decades on their side you just want to keep buying, regardless of what the market is doing.

    This article about the hypothetical world’s worst market timer is interesting – held his money and only invested in the S&P 500 right at the peak of bad crashes, but never sold. Ended up with $1.1MM.

    http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

  124. Suddenly owning an index of FANG-type stocks doesn’t look very smart

    That’s why you go for the entire market and not just one segment of it. Meet the market, don’t try to beat the market. Can a savvy and lucky investor beat it? Sure, but I’m not that, nor do I pretend to be. I’m happy to hitch my ride to the long-term progress of the global economy.

    If the entire global markets take a dump, welp, that’s what happens sometimes. But history has shown over the long term the overall global market does recover.

  125. You guys have just illustrated to some extent the value of active management (MFs). The highs are muted because of the MER, but the lows aren’t as low, because there’s always someone watching the stocks and funds who can cut losses, and sometimes benefit from volatility. I know it doesn’t always work out that way, but unless you have stop-loss orders on all your ETFs, a 2008-style crash would in theory affect index funds and ETFs (linked to overall market) much more than an actively managed account.

  126. “All that is certain is that many people are buying index funds that include very low return assets such as Amazon and negative interest corporate bonds.”

    Nevertheless, while the buying continues, investors are enjoying capital gains on assets of dubious value. AMZN for example would have to drop around 90% before its P/E corresponded with the S and P 500 average, while negative yield bonds, obviously, have to drop in value before they can yield anything at all.

    In that connection, it would be interesting to know what the ROI, excluding capital gain or loss, is achieved on rental property purchased at current prices. A stock market crash would make those returns look anemic, which could be the trigger for a RE slump, resulting in capital losses for RE investors.

  127. ” I imagine that any mass selloff would result in those individual stocks declining in value and investors would step in immediately to get the discount on them, bumping those prices up again, which would bring the value of the index fund up again..”

    Possibly. The thing is that many, perhaps the great majority, of index fund investors are not watching the underlying stocks, and so many are unaware that they are investing in, say, negative return corporate bonds, or AMZN, with a P/E of 240. So they may continue investing until the underlying investments are driven to totally insane heights, all the while enjoying unrealized capital gains. But anything that sets of a big selloff could concentrate people’s minds. Suddenly owning an index of FANG-type stocks doesn’t look very smart, best get out while there some of capital gain still to be crystalized: then the bottom could drop out.

    One thing, it has been suggested, that could set off a run is the indebtedness of many rich people who have borrowed against their stock portfolio to support an extravagant life style, fancy houses, yachts, etc. These are the people who will be most sensitive to any drop in the index and whose margin-call sellling could create the frightening dip that initiates a mass sell-off. At that point, Barrister’s hope of a $3 million plus cash sale may be shot.

    But, who knows. All that is certain is that many people are buying index funds that include very low return assets such as Amazon and negative interest corporate bonds.

  128. “-maintain or even extend the RTA protections for tenants in rental buildings, BUT tilt the act more in the landlords favour for rentals that are in a portion of the landlords principal residence. One of the reasons that people favour Air BnB is the fear of getting an obnoxious and painful to evict tenant in their basement suite.”

    @caveat emptor
    But this would create a two-tiered rental market, where tenants lucky enough to secure a rental unit in a building owned by a commercial landlord receive the full benefit of the RTA, while those who rent from mom and pop receive inferior protections. It would also discourage construction of purpose-built rental housing.

    If you are renting out your basement, you should, at the very least, familiarize yourself with the RTA (that way, for example, you’ll know not to write an eviction notice on a napkin), and vet your prospective tenants. Also, maintain the suite, and don’t overprice it. If you can’t be bothered to do those things, don’t be a landlord.

    And I think the Air BnB thing applies more to investment condos. A basement suite is the last thing I’d book for a vacation. “Hey honey, this looks great. Non-egress windows, 6′ ceilings, and 70s wood panelling!”

  129. And if the index begins to falter or decline, then mass panic selling and a crash of the index could ensue.

    Because these broad-market index funds hold individual stocks, I imagine that any mass selloff would result in those individual stocks declining in value and investors would step in immediately to get the discount on them, bumping those prices up again, which would bring the value of the index fund up again.

    I’m no economist or fin wiz though, so please correct me if I’m wrong.

  130. True, but that’s down to the methodologies of the individual index funds, and the three espoused by CCP seem to track markets as broadly and completely as possible. If you accurately track the entire world’s equity markets, your risk/reward is pegged to how the entire world’s markets are doing as a whole.

    XAW for instance, seeks to replicate “the performance of the MSCI® ACWI ex Canada IMI Index”

    The fund seeks to provide long-term capital growth by replicating, to the extent possible, the performance of the MSCI ACWI ex Canada IMI (the “Index”), net of expenses. Under normal market conditions, the fund will primarily invest in securities of one or more exchange-traded funds managed by BlackRock or an affiliate (“iShares ETFs”) and/or international equity securities. The Index captures large, mid and small cap representation across 22 of 23 developed markets countries (excluding Canada) and 23 emerging market countries. The Index covers approximately 99% of the global equity opportunity set outside Canada and is a free float-adjusted market capitalization weighted index. The primary investment strategy of the fund is to invest in securities of one or more iShares ETFs, and/or securities of the constituent issuers included in the Index, such that the resulting portfolio will have characteristics that closely match the characteristics of the Index.

    https://www.blackrock.com/ca/individual/en/literature/etf-summary/xaw-summ-doc-en-ca.pdf

  131. “I’m even one level dumber/simpler when it comes to investments, using a 3-fund indexing strategy as outlined by Canadian Couch Potato”

    I have some index fund shares. the Russian ones have done really well. But there is possibly a major risk with index investing. Because risk is spread, investors feel they have minimized risk, and that being so, they feel confident plunking down another hundred, or thousand or whatever each month to acquire more of the index.

    But though they have spread risk, index fund buyers have not minimized risk. There risk is the risk of the index, rather than the risk associated with some particular stocks. Thus when the index is largely made up of FANG stocks or very low yielding bonds, the risk in the index may be high, even as the risk keeps building because many index investors believe that they have minimized risk and so keep pouring money into the index funds driving P/Es to crazy levels and bond interest rates negative.

    And if the index begins to falter or decline, then mass panic selling and a crash of the index could ensue.

  132. “The most important thing to an experienced realtor is their reputation, it counts for more than anything.”

    Richard, you are probably naturally honest, indeed, perhaps even a bit of a mug, like me!

    But my point was that even if a buyer’s agent is prone to hustle clients into buying sooner rather than later, and bidding higher rather than lower, there’s no means to prove that such behavior is unethical. It’s all a matter of judgement. Moreover, clients, like everyone else, are prone to cognitive dissonance reduction, so whatever they are persuaded to do, they will likely rationalize it as the best course, unless the outcome is totally disastrous. But in that case, the buyer’s agent will likely always be able to point to unforeseen and probably unforeseeable circumstances.

    Oddly, enough, it seems to me, a buyer is better off dealing directly with the vendor’s agent. The vendor’s agent wants a sale, sooner rather than later. The commission earned on the last few thousand dollars on the sale price doesn’t justify missing out on a quick sale.

    Moreover, the vendor’s agent knows what offers have been made or are likely to be made and what the vendor’s thinking is regarding an acceptable price. Therefore, the vendor’s agent will likely give better information about the probably level of an acceptable offer.

  133. I’m even one level dumber/simpler when it comes to investments, using a 3-fund indexing strategy as outlined by Canadian Couch Potato:

    20% ZAG – Canadian bond ETF
    15% VCN – Canadian equities ETF
    65% XAW – Rest of the world’s equities ETF

    No fees to buy these ETFs on Questrade, only a $5k minimum balance or one trade a quarter needed to avoid any account fees, IIRC. Was easy to set up. I only open up Questrade every 2 weeks when I get paid and buy a certain amount of each to hit my target allocations, otherwise I forget it exists. Every year or so I’ll go in and rebalance through selling/buying if it’s really out of whack. Something like a 0.15% MER on the funds.

    Wealthsimple is a simliar concept with a slightly higher MER, but it’s more hands off from what I understand.

  134. “There was a study that showed the people that forgot about their accounts had the best investment returns on average. Also the best way to reduce fees.”

    Hey, that’s good news. I so get bored trying to understand annual reports and reading how to turn ten grand into ten million by investing in this or that little known startup that Bezos or Buffet or someone is in on.

  135. I am so glad I am in line with you guys who is using ETF/MF and other smart options/services

    1) I went to school as an international student here in 2005 and did OK in school( average mark was like B or B+). Ended up with decent paying job with the government as a project manager( of course I started as clear 7 paying about 30k and slowly moved up by applying into the positions I am interested in and the government helped and sponsored me and helped with all the immigration papers. And now I am a Canadian.

    2) One thing I have learned over the years is the ability to read, type and communicate with the people around me ( including online discussion board/VV is one of them)

    Here is how I was able to purchase a few properties since 2010 without using full service agents.( I only used one agent who charged me about 3k for his service..), other two properties were brought without agents and I have drafted my own purchase and sell contract ( looked by the lawyer) and presented to the seller’s agents— they have no choice but to show/present the offer into the seller. One condition to get the sellers agent to lower selling commission – and seller agent were not happy but they did it anyway. I am assuming the sellers were so in shock how much they are paying those agents.

    Giving that I did not make enough in 2010, so I have been saving a lot.

    I also have been following HHV, VV and purchased and flipped 3 downtown condos…s(thanks to Marko’s posts)o I made the payment with a portion of proceeds from the flipping.

    And put the rest into rrsp/tax free account with TD e-series account, fee is like 0.5% since 2010….
    Now I am seeking out your expertise to reno my own kitchen:
    I have designed and purchased a full cabinets(about 14 cabinets and 7 drawers) with IKEA and the delivery has arrived . the cost is about 7k and now ready to set it up.

    I am looking for recommdations/names.

    1) A sub trade person who is capable to remove the existing cabinets and remove the drywall(with old tiles on it), and tape new drywall. How much should I budgeting /paying those trade people? $25/hr?
    2) A painter who is willing to paint the full kitchen? How much should I paying the painter at hourly rate?
    3) A person /a helper who could potential install the cabinets for me? How much should I paying the cabinet assemblers? And installers? I saw a guy on used Victoria charing $35/hr.
    4) Need a floor guy to install the floor. Who would you recommended?
    5) Found a plumber charging me $50/hr to install the sink and move the hookup the garburator
    6) Need an electrician to make two more outlets on existing wall( next to one existing outlet)
    7) I also need one labour to move the fridge from the garage back into the new kitchen when it is ready and clean the place up.

    This is my Fall side-project while working as a full time project manager at work…. It’s fun and that’s why I am doing it on my own.

  136. “It is unlikely to be in an agent’s interest to sabotage that relationship for the sake of a sale.”

    “Dunno. I would have thought some would do it every time. What’s the chance of being caught? ”
    WOW CS, YOU ARE SOME CYNIC !

    The most important thing to an experienced realtor is their reputation, it counts for more than anything. Money vs Reputation, no contest, there’s always another day to make money but you only need to lose your reputation once and it can be game over.
    Some novice Realtor may well jeopardize their career to make a desperate buck, possibly. As to the remoteness of being caught, not so, if anything goes South law suits start flying in a hurry and Realtors will always be on the receiving end as neither judge or public has any leniency towards unscrupulous Realtors.
    I have counselled many a client not to buy a certain property or make unconditional offers. What they decide to do is their business but at the end of the day I have a clear conscience.
    For me I see it as my job to give the client as much information as I can obtain/find and then leave it up to the client to make an informed decision.

  137. There was a study that showed the people that forgot about their accounts had the best investment returns on average. Also the best way to reduce fees.

  138. Totally agreed CS. Those kinds of small tweaks are probably what explain the couple additional percent that agents get for their places.

    One of the main things I’d like to see changed is a faster/better way to make offers and negotiate. I hear about buyers agents trying to talk clients out of presenting low offers all the time. Not saying they aren’t right (seller not likely to take it, could get offended, etc) but this should never happen. Presenting at least a preliminary offer should take no work at all such that all offers are presented automatically. Takes all of 30 seconds for a seller to review and reject if they don’t like it.

  139. but the alternative isn’t zero cost. Opening a brokerage account involves fees (or a significant minimum balance), and buying and selling ETF’s usually involves fees. Plus it involves effort, so if you value your time, it’s not free. Sure, if you’re investing $200,000 then these costs don’t add up to 2%, but they might if you’re investing $2000.

    It is effectively zero….my TD Waterhouse account is free to maintain and it is $10/trade and I only do a handful of trades every year. Just buy crap and collect dividends.

    I use to watch BNN and now I don’t even bother doing that. Just read a few finance stories and buy big cap dividend paying CND stocks for my RRSPs. For example, if competition for Rogers/Telus/Bell becomes a concern I would probably hear about it in mainstream media and maybe go lighter in that field the follow year RRSP purchase.

    For TSFAs I just occasionally research a start up company but wouldn’t be more than a handful of hours per year.

    There is BMO stock I’ve owned for over 8 years straight….wouldn’t it be dumb if I was paying 2% MER for 8 years in a row for holding something?

  140. “It is unlikely to be in an agent’s interest to sabotage that relationship for the sake of a sale.”

    Dunno. I would have thought some would do it every time. What’s the chance of being caught? Negligible, I would say. I mean, the buyer asks, “is that a reasonable price or should I put in a lower offer,” and the buyer’s agent can say either “yeah, try a lower offer,” in which case the vendor may take someone else’s better price, or the buyer’s agent will say “I think you need to offer full price, or even over the asking, if you want to snag it.”

    That way, the buyer’s agent is more likely to collect their commission, and who’s to know whether a low bid would have succeeded? In other words, a buyer’s agent has an incentive to promote a purchase whether the deal is good, bad or indifferent, which is not necessarily in the buyer’s interest.

    And one could think of many other situations where the agent can encourage a buyer contrary to what most people would consider the buyer’s interest without telling a provable lie.

  141. Yeah Bearkiller!
    “You can also pay attention in school and not be a total loser and have a good paying job so you can buy a house but a lot don’t do that either.”
    You’ve confirmed why I voted for you not to be de-blogged! I love your simple and direct comments! Keep em coming!

  142. What would you like to see changed in the real estate industry?

    Lower standard commission rates. Lots of reasons to use a full service real estate agent for many people but 6/3 is outrageous
    End of sleazy fine print on big bank mortgages (re penalty rates for instance)
    -Sale prices freely available to the public – this is the information age. I should be able to go to DATA BC or some other public site and search past sale prices. There is a strong public interest in having this data available to the public.
    -limit the principal residence exemption on capital gains. Could have it so you can only claim it once every x number of years
    -tax flipper’s gains as income not capital gains
    -zoning and NIMBY anti-density attitudes makes it WAY WAY easier to build one monster house on a larger lot than to build two or three smaller more affordable houses on the same lot. This needs to change
    -maintain or even extend the RTA protections for tenants in rental buildings, BUT tilt the act more in the landlords favour for rentals that are in a portion of the landlords principal residence. One of the reasons that people favour Air BnB is the fear of getting an obnoxious and painful to evict tenant in their basement suite.

  143. Not that I’m going to defend 2% mutual funds, but the alternative isn’t zero cost. Opening a brokerage account involves fees (or a significant minimum balance), and buying and selling ETF’s usually involves fees. Plus it involves effort, so if you value your time, it’s not free. Sure, if you’re investing $200,000 then these costs don’t add up to 2%, but they might if you’re investing $2000.

    Just to provide the other side of the argument.

    We’re rapidly moving towards a world where everything that can be automated will be, as labour costs will be the greatest expense in most industries. But people are also realizing the value of their own time and of work-life balance. So your own time is not free either (anyone with kids learns this in a hurry). Thus, investing your time as a teenager can pay off well (in terms of maximizing benefit while your own time is worth little), but it’s also ok to change your mind once you’re no longer a teenager.

  144. And how is it better, as a buyer, to be represented by a realtor?

    In the same way it is better to outsource most everything. You are paying to have some things handled for you. Also you are paying for a second opinion or counselor of sorts. I think that is actually one of the main values that people appreciate. The mechanics of the deal can be automated, the person to stay calm in a stressful situation, not as easily.

    Isn’t the buyer’s agent as anxious as the vendor’s agent to clinch a deal, which means that there will always be a conflict of interest when a buyer retains an agent?

    That depends. For agents that have been in the business a long time, a big chunk of the work comes from referrals from past clients or repeat business from them. That requires those clients to be happy. It is unlikely to be in an agent’s interest to sabotage that relationship for the sake of a sale. That said it is shades of grey. There is certainly competing interests there there is some evidence that agents get more for their own homes when that conflict disappears: http://www.nber.org/papers/w11053

    Better surely to act for yourself, dealing directly with the vendors agent and seeking advice if needed from appraisers, lawyers, etc., with the maxim caveat emptor always in mind.

    Hey I don’t disagree. That’s what we did. Question is, did we get a better price that way? I can’t be sure.

  145. The competition bureau cracked down on the real estate industry more than 7 years ago and the consumer hasn’t embraced it. It’s an open market and the market supports very high real estate fees as we currently speak. Mere postings are less than 1% market share so obviously the consumer sees something in the full service real estate business model.

    Or they’re on autopilot and they don’t think about it. Probably a bit of both. There is definitely value in full service real estate. Just like not everyone wants to change their own oil, or sell their own car, not everyone wants to do their own legwork (or is capable of it). Question is, what is the value of that service? Is it 6/3% or maybe something else?

    Just look at how many people have mutual funds. Do I see any value in paying a 2% MER, absolutely not, I’ve had a self-directed trading account since I was 19 years old and mostly by luck I’ve outperformed the market in my RRSPs, TSFAs, etc, but more importantly I’ve saved a small fortune not paying MERs. Doesn’t mean millions of people don’t see value in it mutual funds.

    I’ve never seen anyone argue that they are getting 2% of value from their mutual funds. More its like “oh I didn’t know it was that much” or “2% seems pretty low” or “yeah but I’m too lazy to figure out what an ETF is”.

  146. Sounds like Bearkilla is the only smart person Marko met in the last year. He knows everything about everything. I see Bearkilla’s neighbor is selling using a mere posting. 😉

  147. The odd thing about real estate fees that drives me nuts is people complain about high real estate fees but very few take any action. It is an open marketplace with 1900 listings and nearly 1400 realtors. I think there is some room to negotiate.

  148. “You can also pay attention in school and not be a total loser and have a good paying job so you can buy a house but a lot don’t do that either.”

    There it is folks. The prescription for success. Pay attention in school, and you too can own your own home!

  149. I agree with Marko here. I mean the average joe is pretty stupid when it comes to a lot of things and that includes real estate. You can already do mere postings and very few do. You can also use a notary for conveyancing or use a mortgage broker to get better rates but a lot of people don’t do that. You can also pay attention in school and not be a total loser and have a good paying job so you can buy a house but a lot don’t do that either.

  150. There’s so much money in professional sports, and athletes absolutely should get a fair share of it. So many have health issues last their entire lives. They have short careers and retire early compared to everyone else. You could argue that there’s too much money in sports in general, but that’s a reflection of the interest in sports and the advertising around it.

    As to RE agents, selling agents might largely go the way of the dodo in favour of a flat-fee structure for simply aligning the necessary parts (prep work, photos, listing, due diligence, etc). Some of that dovetails with a lawyer. Buying agents could play more of a role to help guide buyers into their needs, see early red flags, let them know about things outside of what they originally wanted (you said 3bath, but you should consider this 2bath instead because…). Is that worth a % commission vs flat or time based fee? Would need to upend the current system of the seller eating that cost and put it on the buyer.

  151. They should have walked you through the Working with a Realtor brochure and explained the difference between a customer relationship and a client relationship and what that means.
    So, if you walk up to a listing agent and say you want to write an offer …:
    1. You can be their customer.

    Well, yes, istn’t that always how it works. I mean, do buyers engage realtors to represent their interest?!

    And how is it better, as a buyer, to be represented by a realtor?

    Isn’t the buyer’s agent as anxious as the vendor’s agent to clinch a deal, which means that there will always be a conflict of interest when a buyer retains an agent?

    Better surely to act for yourself, dealing directly with the vendors agent and seeking advice if needed from appraisers, lawyers, etc., with the maxim caveat emptor always in mind.

  152. The reason the council has had such a problem getting rid of limited dual agency is that agency persists forever so that causes problems.
    For example:
    Agent Bill works with Buyer Jane to sell her condo. After the condo is sold she sees one of Bill’s listings and wants to buy it. Bill can no longer offer a customer relationship because Jane was previously a client and even though her sale is done he still has an agency relationship with her. So this would go through limited dual agency. Without LDA he would have to refer Jane out to another agent.

    In a small community with only a few real estate agents it could get tricky as agents create agency relationships with many of the residents in town and there aren’t many options to refer out to.

  153. That depends on the conversation that you’ve had with that listing agent. They should have walked you through the Working with a Realtor brochure and explained the difference between a customer relationship and a client relationship and what that means.
    So, if you walk up to a listing agent and say you want to write an offer one of two things can happen:
    1. You can be their customer. That means they can help you with paperwork and the process but they do not represent you. They have no fiduciary duty to protect your best interests and cannot advise on price. In this case there is no conflict of interest, the listing agent only represents the seller.
    2. You can be their client under a limited dual agency agreement. This means they represent both of you as clients and technically have a fiduciary duty to act in both of your best interests but of course this isn’t actually possible since the interests are competitive so there are limitations as outlined in the brochure. Fundamentally the problem is that there is an inherent conflict of interest there. Usually it is a better idea to do the customer relationship where the priorities are clear or work with your own agent

    http://www.bcrea.bc.ca/docs/working-with-a-realtor-/wwar.pdf

  154. It doesn’t matter how hard a real estate agent works or how much experience they have, they shouldn’t be making more than ~$150k/year in my opinion.

    I don’t think basketball players should be making $40 million a year but such is life.

    The competition bureau cracked down on the real estate industry more than 7 years ago and the consumer hasn’t embraced it. It’s an open market and the market supports very high real estate fees as we currently speak.

    Mere postings are less than 1% market share so obviously the consumer sees something in the full service real estate business model.

    Just look at how many people have mutual funds. Do I see any value in paying a 2% MER, absolutely not, I’ve had a self-directed trading account since I was 19 years old and mostly by luck I’ve outperformed the market in my RRSPs, TSFAs, etc, but more importantly I’ve saved a small fortune not paying MERs. Doesn’t mean millions of people don’t see value in it mutual funds.

  155. Leo, I don’t understand what is involved in a “limited dual agency”. If I see a property I am interested in buying and I go to the listing realtor and ask them to write up an offer, is that realtor acting in a limited dual agency role? And if so, what is the problem?

  156. “What would you like to see changed in the real estate industry?”

    Oh so many things.

    A hard cap on earnings per transaction and percentage for real estate agents. It doesn’t matter how hard a real estate agent works or how much experience they have, they shouldn’t be making more than ~$150k/year in my opinion. Seasonal or market inconsistency is not the buyer or the sellers problem. Change the method of income if that’s important (paid for time in some capacity).
    A decaying speculator tax. Buy and sell within 12 months -> 30% tax. Within 24 months -> 15%, etc. Independant from any foreigner tax.
    Eliminate limited dual agency.
    Realtors who have been proven to shadow flip should have their license removed and not be able to return to real estate Canada wide.
    Same goes for subprime lenders.

    Owners convicted of money laundering via real estate have their assets seized, right? If not, then that’s on my list too.