Garth Turner

[Stephen1151]

Just wondering what others think about Garth Turner. A friend of mine is really into his predictions and wondered what I thought. Now that I have read some of his book "after the crash" I see he has a pretty bleak view of the future of real estate. any thoughts?

 

[Rickson9]

Speaking for myself, I don`t believe that the future is predictable so I don`t spend time dwelling on it. My investment strategy also doesn`t depend on my being able to predict the future.

 

[Thomas Beyer]

QUOTE (stephen @ Nov 6 2010, 03:05 PM) Just wondering what others think about Garth Turner. A friend of mine is really into his predictions and wondered what I thought. Now that I have read some of his book "after the crash" I see he has a pretty bleak view of the future of real estate. any thoughts?
He is too gloomy .. of course not all markets will prosper .. but not all will decline either. People have to live somewhere ! Alberta had a 20% population growth between 2000 and 2010. Greater Vancouver will see 50,000 new people, on average, every year for the next 20. GTA has a green belt and can grow only buy being more dense/more high rises .. etc. etc. etc.

I a world where money`s value gets deflated by "quantatative easing (QE)" real assets will grow in value, be they oil, gas, water, potash, agricultural land, wheat or residential real estate !

Buy where people move to .. larger cities with in-migration (for example: pick any Top 10 town in BC, AB or ON recommended by REIN) .. and in an inflationary world you will be fine if prudently levered and impeccable managed .. as there will always be a demand for well situated, well maintained and reasonably priced rental real estate !

What is G Turner`s gloom based on ? Retiring boomers downsizing ? They too have to live somewhere .. and many will buy a 2nd home in warmer places or move from a big bungalow to a smaller one or a condo. Thus, stay away from monster-homes (5BR+) or townhouses that gear to boomers only (due to stairs) [stick with townhouses that can be rented to families though in cities near transportation hubs]

 

[JDaley]

QUOTE (ThomasBeyer @ Nov 6 2010, 07:39 PM) I a world where money`s value gets deflated by "quantative easing" real assets will grow in value, be they oil, gas, water, potash, agricultural land, wheat or residential real estate !

You keep confusing the meaning of inflation - inflation doesn`t necessarily equate to higher home prices (core inflation CPI certainly doesn’t take it into account), in fact what`s likely to occur in the next few years is price inflation (oil, gas, commodities etc) with asset deflation (homes, real estate drop in value). Don`t believe it, in 2007, in the US, oil and gas prices spiked while home prices crashed. Can`t happen here ? Consider, the cost of a home in Vancouver is 9 times the average annual income, far higher than in the US before its crash - home prices are simply unsustainable. A 850 sq ft bungalow in Vancouver hovers around $1MM. As for REIN’s top ten list and in-migration, did you know Calgary experienced an out- migration, the first time in 10 years yet Calgary is listed #1 on this list. What about Grand Prairie ? Did you know Calgary’s building permit levels have dropped significantly from last year. Home builders (the most optimistic group) are usually a bell-weather. Did you also know that Calgary’s single family home prices haven`t yet recovered from 2007 levels while taxes, and the cost of living have increased. That`s the reality, not pie in the sky, keep buying till you blow your brains out. If inflation is a concern, focus on paying down high-levels of debt since that`s the best protection against inflation.

 

[housingrental]

Hi Mr. Daley
What sort of modeling and out flow of this do you see in a situation where both commodities and assets deflate? Possibly only marginally and over a long time period - How would you approach playing this scenario?

QUOTE (JDaley @ Nov 6 2010, 10:17 PM) You keep confusing the meaning of inflation - inflation doesn`t necessarily equate to higher home prices (core inflation CPI certainly doesn`t take it into account), in fact what`s likely to occur in the next few years is price inflation (oil, gas, commodities etc) with asset deflation (homes, real estate drop in value). Don`t believe it, in 2007, in the US, oil and gas prices spiked while home prices crashed. Can`t happen here ? Consider, the cost of a home in Vancouver is 9 times the average annual income, far higher than in the US before its crash - home prices are simply unsustainable. A 850 sq ft bungalow in Vancouver hovers around $1MM. As for REIN`s top ten list and in-migration, did you know Calgary experienced an out- migration, the first time in 10 years yet Calgary is listed #1 on this list. What about Grand Prairie ? Did you know Calgary`s building permit levels have dropped significantly from last year. Home builders (the most optimistic group) are usually a bell-weather. Did you also know that Calgary`s single family home prices haven`t yet recovered from 2007 levels while taxes, and the cost of living have increased. That`s the reality, not pie in the sky, keep buying till you blow your brains out. If inflation is a concern, focus on paying down high-levels of debt since that`s the best protection against inflation.

 

[Thomas Beyer]

QUOTE (JDaley @ Nov 6 2010, 08:17 PM) You keep confusing the meaning of inflation - inflation doesn`t necessarily equate to higher home prices ..
Inflation is erosion of purchasing power. It will not always, of course, but USUALLY translate into higher asset value including homes ! Of course home prices are affected by many variables, such as in-migration, mortgage rates, supply/demand, job growth/shrinkage etc. ... but home prices, ON AVERAGE, go up with inflation (and much QE will produce inflation .. eventually .. probably within 2 years for sure)

QUOTE (JDaley @ Nov 6 2010, 08:17 PM) .. in fact what`s likely to occur in the next few years is price inflation (oil, gas, commodities etc) with asset deflation (homes, real estate drop in value). ..
A house is an asset .. is it not ? It consists of physical assets that are finite, namely: land, .. plus labour to put all those pieces together (wood, concrete, glass, doors, pipes, walls, ..)

QUOTE (JDaley @ Nov 6 2010, 08:17 PM) .. Don`t believe it, in 2007, in the US, oil and gas prices spiked while home prices crashed. ..
indeed .. an unusual anomilty due to excessive speculation in the oil/gas market coupled with a crashing economy .. as short time thereafter oil/gas prices plummeted too .. to $30`s/barrel of oil .. remember ??

QUOTE (JDaley @ Nov 6 2010, 08:17 PM) .. Can`t happen here ?
could .. but unlikely to the US extend given the monetary policies and Canada`s role as a supplier of fuel, fod and fertilizer for the world i.e. a hard asset based economy !

QUOTE (JDaley @ Nov 6 2010, 08:17 PM) .. Consider, the cost of a home in Vancouver is 9 times the average annual income, far higher than in the US before its crash - home prices are simply unsustainable. A 850 sq ft bungalow in Vancouver hovers around $1MM. ..
Gee, I have heard this for over 25 years now .. even since I moved here in the 80`s .. [and others heard it since the 60`s] .. When I lived here an average bungalow was low 200`s .. today that is triple in a below average location or 30 km form downtown Vancouver in Surrey or Burnaby ! Vancouver always has, always will be more expensive than most Canadian cities as it attracts much foreign capital and is a desirable place to live: ocean, mountains, beaches, decent weather, safe, international airport, culture, universities, close to nature, clean air .. and prices compared to other world cities with similar attributes, say Zurich, Switzerland or Singapore or Sydney or New York are NOT TOO HIGH !! I was in New York last week .. and prices are easily 50-100% higher than Vancouver ! Why is that ? Because many people want to live in New York with all its culture and art and jobs and energy [and it has 3 buys international airports] ! Don`t expect Vancouver prices to drop any time soon ! There is the usual fluctuations, of course, but a condo with oceanview or a house in a quiet neighborhood (Kits, Pt. Grey, W-Van, N-Van, Karrisdale, ...) within 30 minutes of downtown will have much price appreciation potential !

QUOTE (JDaley @ Nov 6 2010, 08:17 PM) .. . As for REIN’s top ten list and in-migration, did you know Calgary experienced an out- migration, the first time in 10 years yet Calgary is listed #1 on this list. ..
Yes, we had an ex-migration for a very short year .. mainly due to low gas and oil prices .. That`s why you you should BUY in Calgary now as in-migration has picked up and will continue to be strong. It is after all, the North American energy center and head office for the Petro-Currency denominated oil and gas industry !

QUOTE (JDaley @ Nov 6 2010, 08:17 PM) .. What about Grand Prairie ? ..

it was very gas dependent and as such has dropped significantly and will take A WHILE to recover. It is not Edmonton or Calgary. It is a small center and as such needs to be cheaper than Edmonton. It wasn`t. Now it is.

QUOTE (JDaley @ Nov 6 2010, 08:17 PM) .. Did you know Calgary’s building permit levels have dropped significantly from last year. Home builders (the most optimistic group) are usually a bell-weather. Did you also know that Calgary’s single family home prices haven`t yet recovered from 2007 levels while taxes, and the cost of living have increased. .

I am not sure if this is true. Prices are more or less where they were in 2007 and permits are up quite a bit.

QUOTE (JDaley @ Nov 6 2010, 08:17 PM) .. That`s the reality, not pie in the sky, keep buying till you blow your brains out. If inflation is a concern, focus on paying down high-levels of debt since that`s the best protection against inflation.

Yes, that is ONE way to increase net worth: reduce your liabilities/debt.

However, a very strong argument can be made that MUCH MONEY will be available for YEARS to come due to baby boomers and corporations sitting on huge cash piles not knowing where to invest it. Mortgage will be cheap for quite some time .. thus the BETTER STRATEGY is to increase your assets with decent sustainable debt level, i.e. with assets (such as apartment buildings or other income producing corporations) whose yield exceeds that of the cost of debt by a fair margin !

Example: we`re buying an asset in Calgary right now with a 6% CAP rate and borrow for 5 years at 3.5% .. with 30% down. A safe bet - with excellent yield on the cash invested - to me.


...


Keep the debate going .. where am I wrong .. what do you see that I do not ?

 

[housingrental]

Keep the debate going .. where am I wrong .. what do you see that I do not ?

Hi Thomas

You might be correct on all

The risks that I see are for something like Vancouver - what happens when foreign demand is reduced? Lower valuations... Is this going to happen? I don`t know. Is this a risk factor? Yes. Might a prudent investor want to reduce exposure to markets like this? Why not...? What benefit does it provide vs others without this extra layer of risk?

On Calgary, Grand Prairie, etc.. Same idea for oil and gas prices - Is it prudent for an investor to take it as a given that they will be higher in X years? What will population growth really look like in these places if oil and gas prices are lower?

 

[Thomas Beyer]

QUOTE (housingrental @ Nov 7 2010, 10:29 AM) ..

The risks that I see are for something like Vancouver - what happens when foreign demand is reduced? Lower valuations... Is this going to happen? I don`t know. Is this a risk factor? Yes. Might a prudent investor want to reduce exposure to markets like this? Why not...? What benefit does it provide vs others without this extra layer of risk?
Isn`t the dream of every Albertan to eventually retire in Vancouver ?

Yes, there is risk that Asian (or to a lesser degree, E-European or S-American) capital dries up .. but that is low. Do you really want to live in congested and polluted and corrupt (??) Bejing or Kualalumpur or Islamabad or Kabul or Tashkent or Mumbai or Teheran ? Most folks with money want OUT .. or at least with one leg .. or for their kids. Much money is parked in Vancouver condos (or Zurich`s or London`s or Sydney`s or Paris` or New York`s) due to volatile Asian and South-American political situations.

How many people send their kids to UBC or Harvard or London .. quite a few .. and how many from UK or US or Canada to universities in Bejing or Kualalumpur or Islamabad or Kabul or Tashkent or Mumbai or Teheran ? A few .. but not many.

A niece piece of real estate in a safe place is the NEW GOLD.

Is there risk that gold prices drop .. of course there is .. but gold and condos in nice places and OIL is the new world currency !

QUOTE (housingrental @ Nov 7 2010, 10:29 AM) ..
On Calgary, Grand Prairie, etc.. Same idea for oil and gas prices - Is it prudent for an investor to take it as a given that they will be higher in X years? What will population growth really look like in these places if oil and gas prices are lower?

gas is so low .. it can hardly go lower.

New oil fields are very expensive to exploit .. and most large ones have been discovered years and years ago but are not economical at $50 or even $75/barrel. Plus, the new green oil from SAGD oilsands extraction is far less risky than drilling 10,000 ft below the gulf of Mexico. Why would oil be lower in 10 years ? It`ll be well over $200/barrel .. as a rule of thumb $10-$12/year going up .. and yes it`ll fluctuate up or down 10-20% .. one action by Iran in the Straight of Hormuz ..and prices will be up 50% OVERNIGHT !

Thus: AB and SK, and to a somewhat lesser degree BC, NL, NS and ON will be great places for investments due to oil based industries.

 

[JDaley]

QUOTE (housingrental @ Nov 7 2010, 11:00 AM) Hi Mr. Daley
What sort of modeling and out flow of this do you see in a situation where both commodities and assets deflate? Possibly only marginally and over a long time period - How would you approach playing this scenario?

Hi Adam,
I believe commodity and asset deflation are happening to some extent now, it explains the huge fed pump priming the US economy. This `should` have the effect of debasing their currency to create jobs at home and force commodity prices to rise (since commodities such as oil are traded in US dollars). The Fed is targeting US home prices through QE2. The question is, will it work ? Good question on playing a deflationary environment, I`d look at reducing my position on hard assets such as real estate (multiple properties) since this has the biggest impact on your net worth and instead look to bonds with short durations. The markets last week responded to the US QE2 by moving money away from bonds and back into equities, ie., the markets expect commodity inflation in the short term (oil, gas, gold etc). In this kind of economic environment (uncertainty), its wise to be liquid than illiquid. These days, few people are talking real estate as an investment stratgey, this market is burnt-out at elast for the next few years - compare this to talk only has far back as 2007. The people purchasing these days are younger couples with high debt levels. I`ll look again at (US and Canadian) real estate as soon as the US posts consecutive quarters of large employment gains.

 

[Thomas Beyer]

QUOTE (JDaley @ Nov 7 2010, 12:47 PM) ... I`ll look again at (US and Canadian) real estate as soon as the US posts consecutive quarters of large employment gains.
such as the last 3 .. so you`re buying NOW ?

 

[JDaley]

QUOTE (ThomasBeyer @ Nov 7 2010, 11:51 AM) such as the last 3 .. so you`re buying NOW ?

Not now, I think the US is far from clear. Posting positive jobs gain isn`t enough. I think we need to see at least 100,0000-250,000/mo NFP employment gains for a few quarters. The unemployment rate is stuck at around 10%. I have friends in the US and they describe quite a dire situation that isn`t covered as accuracy as it could be by the US media (for obvious reasons I suppose). I`m sure you hearing the same. With so much money being pumped into the US economy, who knows what`ll happen, heck even the Fed doesn`t seem to know what its doing. On the US fiscal side, they don`t appear to have many answers other than tax the rich and increase the demand side of the equation.

 

[gwasser]

QUOTE (JDaley @ Nov 7 2010, 12:50 PM) Not now, I think the US is far from clear. Posting positive jobs gain isn`t enough. I think we need to see at least 100,0000-250,000/mo NFP employment gains for a few quarters. The unemployment rate is stuck at around 10%. I have friends in the US and they describe quite a dire situation that isn`t covered as accuracy as it could be by the US media (for obvious reasons I suppose). I`m sure you hearing the same. With so much money being pumped into the US economy, who knows what`ll happen, heck even the Fed doesn`t seem to know what its doing. On the US fiscal side, they don`t appear to have many answers other than tax the rich and increase the demand side of the equation.

As Don pointed out a while ago, some people need all five traffic lights on green before they invest. The problem with that is that following all five traffic lights on green, the only possibility that remains is that they will turn orange and red again. Right now, in my opinion, of the five lights the third is about to turn green. The stock market is a leading indicator, but that doesn`t mean that it is wrong when you can`t see why it signals a better economy ahead in six months; it simply is.

Regarding perennial bears like David Rosenberg, Garth Turner and Harry Dent, their premise on demographics is often too one sided. As Thomas pointed out the amount of savings is likely on the increase (with the kids out of the house), but that is because babyboomers keep on working rather than retiring and that his how they finance the summer cottage and other recreational endeavours.

Also, North Americans, in particular, people in the U.S. may become less wealthy, or better, less inclined to spend, but many in the emerging markets are becoming increasingly prosperous and aspire a similar lifestyle as ours. So now they will lead in consumption and demands for insurance and a social net to protect them from adversary.

Demographers such as Harry Dent, and their apostles fail to see that the old spending habits from previous generations have changed; they failed to see beyond the North American economic patterns. They think that economies can only do well during population growth. Well, world population is anticipated to stabilize by 2050 and if we haven`t figured out how to live prosperous by that time without an ever growing consumer base then it will be tough slogging for mankind.

Luckily, there is innovation, improved productivity, the benefits of people pursuing a sustainable economy! There will be an energy revolution where the world will no longer be dependent on fossil fuels; there will be a food revolution where people will be learning new ways to create food beyond plain inefficient agriculture. There will be a new education model that will wipe out the current obsolete school system. In our daily life things may seem to move at a snail`s pace. The aforementioned visions may seem like a far off dream; but in twenty years, we all life in a completely revolutionized world, because when compared with historical rates of change, we`re living in a whirlwind.

That is why the Harry Dents, the Garth Turners and even the Jeff Rubins are wrong. You cannot extrapolate from one or very few premises. When you do that, you end up in the black and pessimistic outlooks that many end-of-worlders would like us to believe. I have no clue how the future will look like, but I believe, like Warren Buffett, in this never ending societal drive for a new and ever improving future. Nobody knows the future, but we can get glimpses where we are going and from my stand point, the economic cycle is in tact; the world in a pendulous pattern will keep on getting better. Investors who are bold - not reckless - are the ones who will win they day!

You may read my posts that always seem to be about analyzing numbers. That is to recognize near term trends. That is to manage cash flow; but I invest for the long term using my vision(s) or scenarios of the world and where I focus not just on cash flow but even more on ROI. May you live long and prosper!

 

[Thomas Beyer]

QUOTE (gwasser @ Nov 7 2010, 02:30 PM) As Don pointed out a while ago, some people need all five traffic lights on green before they invest. ..
What are those 5 lights ?

 

[gwasser]

QUOTE (ThomasBeyer @ Nov 7 2010, 02:54 PM) What are those 5 lights ?

Basically, the idea is that the 5 sets of traffic lights regulate your journey along the investment road; just like you may travel along an avenue with 5 intersections and 5 sets of traffic lights somewhere Downtown. Don showed this analogue at the last workshop (I liked it very much).

When does one start to invest or buy into the market? When do you start to push down the pedal on your vehicle, when all five sets of lights are on green or when one is one green? Do you invest when all conditions for investment are favorable, do you run out when the first light turns from red to green, or a bit later when 2 or 3 lights are green?

 

[Thomas Beyer]

QUOTE (gwasser @ Nov 7 2010, 04:01 PM) Basically, the idea is that the 5 sets of traffic lights regulate your journey along the investment road; just like you may travel along an avenue with 5 intersections and 5 sets of traffic lights somewhere Downtown. Don showed this analogue at the last workshop (I liked it very much).

When does one start to invest or buy into the market? When do you start to push down the pedal on your vehicle, when all five sets of lights are on green or when one is one green? Do you invest when all conditions for investment are favorable, do you run out when the first light turns from red to green, or a bit later when 2 or 3 lights are green?
depends on the light .. as one light might say: interest rate growth (from 3% to 12%) and then perhaps real estate is not the best vehicle to own.

Some folks got killed by crossing the road on a green light too .. as the speeding car didn`t see them !! So if the 4th light is "speed of cars approaching" and it is still red .. perhaps ignoring that one is a BAD IDEA !!

One reason why I moved to multi-family (and not bought more single family houses) is that the yield of an asset was higher than the interest rate by a wide margin .. s.th. that is not the case with most single family houses !

So one of these lights to me is the spread between asset yield (CAP rate) and mortgage interest rates !! IT MUST BE GREEN !!

 

[gwasser]

QUOTE (ThomasBeyer @ Nov 7 2010, 03:14 PM) depends on the light .. as one light might say: interest rate growth (from 3% to 12%) and then perhaps real estate is not the best vehicle to own.

Some folks got killed by crossing the road on a green light too .. as the speeding car didn`t see them !! So if the 4th light is "speed of cars approaching" and it is still red .. perhaps ignoring that one is a BAD IDEA !!

One reason why I moved to multi-family (and not bought more single family houses) is that the yield of an asset was higher than the interest rate by a wide margin .. s.th. that is not the case with most single family houses !

So one of these lights to me is the spread between asset yield (CAP rate) and mortgage interest rates !! IT MUST BE GREEN !!

For me, the stock market is on 3 green lights; real estate single units is on two. I don`t think I will be in multifamily, other than maybe as a passive investor. REITS like Boardwalk (apartments) and RioCan (shopping centres). Although right now, because many investors chase yield blindly some of those REITs are a bit rich in price.

 

[housingrental]

Thomas and JDaley thanks for your responses

Re Thomas - Wouldn`t the idea be though that these are risk factors - and the areas with similar potential for growth are available without these risk factors? If pricing is already built in to reflect significant demand from foreign investors in Vancouver, the risk is there if there ever is a reduction in this (less liquidity in world economy is just one example of why this might happen) the area will under perform. It`d be best to get into an area like this PRIOR to the increased foreign demand.

 

[bizaro86]

QUOTE (ThomasBeyer @ Nov 7 2010, 10:45 AM) Isn`t the dream of every Albertan to eventually retire in Vancouver ?

Speaking only for myself...Absolutely not!

Speaking more broadly for my generation, I suspect those of us in our 20s now (Gen Y) who end up with the resources to retire elsewhere won`t be retiring to BC as our forebears did. The world is becoming more international, a trend embodied by those who are my age. I`ve been to 16 countries in the last 4 years, but BC only when changing plane in Vancouver. (And that only once, as I`ll often transit in the US or Europe on direct flights from Calgary.)

If I was going to retire abroad, it would be either to somewhere hot and exotic (Costa Rica, etc) or to one of the great cities of the world, (New York, London, Melbourne, etc). These options, (especially the first one) are not more expensive than BC (even the interior) so the limiting factor is people`s outlook, not pocketbook. As Albertans become more international, you`ll see less of us moving to BC, and more moving to Ambergris Cay.

The world in Canada is also becoming more international. Immigration is the ulitmate offset to decreasing birth rates, and will support real estate values for decades to come. If we as Canadians choose to welcome foreigners, they`ll keep coming here.

Michael

 

[gwasser]

QUOTE (bizaro86 @ Nov 8 2010, 09:29 AM) Speaking only for myself...Absolutely not!

Speaking more broadly for my generation, I suspect those of us in our 20s now (Gen Y) who end up with the resources to retire elsewhere won`t be retiring to BC as our forebears did. The world is becoming more international, a trend embodied by those who are my age. I`ve been to 16 countries in the last 4 years, but BC only when changing plane in Vancouver. (And that only once, as I`ll often transit in the US or Europe on direct flights from Calgary.)

If I was going to retire abroad, it would be either to somewhere hot and exotic (Costa Rica, etc) or to one of the great cities of the world, (New York, London, Melbourne, etc). These options, (especially the first one) are not more expensive than BC (even the interior) so the limiting factor is people`s outlook, not pocketbook. As Albertans become more international, you`ll see less of us moving to BC, and more moving to Ambergris Cay.

The world in Canada is also becoming more international. Immigration is the ulitmate offset to decreasing birth rates, and will support real estate values for decades to come. If we as Canadians choose to welcome foreigners, they`ll keep coming here.

Michael

I guess a lot will be depending on foreign ownership rules and health care legislation both abroad and here in Canada. Furthermore, although the world is becoming smaller, you may want to see grand children on some weekends. But yes there are already a lot of snowbirds, maybe there will be even more with GenY.

However, havings said that, I wouldn`t make real estate value forecasts based on that notion.

 

[bizaro86]

QUOTE (gwasser @ Nov 8 2010, 12:22 PM) However, havings said that, I wouldn`t make real estate value forecasts based on that notion.

Absolutely. It`s only a theory, and I`m not recommending RE in Costa Rica or anything. But I wouldn`t make real estate forecasts based on the idea that, "Every Albertan wants to retire to BC" either. Demographic trends are more complicated than, "this is what happened last generation."

Michael