Garth Turner: Bubble-Boy

If you don’t know the name “Garth Turner” by now, be prepared to hear it over and over again.

The Liberal MP has a new book out that claims Canada has it’s own “hidden debt crisis.”

I don’t want to ever be accused of preaching “happy times forever” in our real estate market, so let’s take a look at what Garth thinks…

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Has anybody ever made outrageous claims just sell a book?

Ask Jose Canseco…

But Garth Turner’s new book, “Greater Fool: The Troubled Future of Real Estate” is critically acclaimed, as it makes critical claims about the Canadian real estate market and what the future has in store for homeowners.

The former Conservative party member and current Liberal MP in Halton suggests that doom and gloom is ahead and that the United States is not alone in it’s troubles.

He cites the recent changes to laws surrounding the purchase and sale of real estate, such as allowing 40-year amortization periods and zero-downpayment mortgages, and believes these changes have allowed Canadians to plunge further into debt than they’ve been in the last ten years.

Turner claims, “Our real estate values have gone way beyond the ability of the average family to afford houses and the only way they can afford them is taking on all kinds of new debt.  That’s exactly what got the Americans into trouble.”

He suggests that more and more consumers are purchasing “great big fancy new houses” that they can’t afford when in reality they should be downsizing or at least adhering to their budget.

The hypothesis of Turner’s thinking is that the United States’ sub-prime mortgage and Canada’s 40-year amortization are two different versions of the exact same problem.

“Many people think that the American real estate market went from good times to terrible times because they had been giving mortgages to people who didn’t deserve them.”

He suggests that due to Canada’s new 40-year amortization mortgages, “That drops monthly payments and it lets people buy houses they wouldn’t be able to afford normally.”

He goes on to make a statement that I would absolutely love to have some clarification on:

“Canadians have 80 per cent of everything they own tied up in real estate.”

What is the definition of “everything” according to Mr. Turner, I wonder?  Is he referring to net worth?  Or is he suggesting that 80% of after-tax dollars are spent on mortgages?

And define “real estate.”  If you renovate your kitchen, with these after-tax dollars, is this included in the 80% statistic that he quotes?  Isn’t that adding resale value to your house anyways?

Sorry, I guess I’m just being difficult again…

When asked, “Has the bubble burst?” Mr. Turner replies:

“It’s already unwinding.  In January, the number of resales went down dramatically across Canada and in February, the number went down dramatically in Toronto and the number of listings have gone up.”

THIS is where I have my largest problem.

You can make numbers say whatever you want them to.

For example, recall that the December 2007 sales figures were absolutely through the roof, since buyers raced feverishly to beat the new Land Transfer Tax in Toronto.  Does this not suggest that January sales might slow as a result?  Mr. Turner makes no mention of this crucial point.

When he says, “In February….the number of listings have gone up,” does he mean in relation to the same period in 2007, or in relation to January?  Clarify, Mr. Turner, please!

What, oh what, would be so wrong with listings going up in February compared to January?  That’s like suggesting that more people play baseball in April than in March, and somehow surmising that this should be viewed negatively!

Real estate is cyclical, and April, May, and June is what we call the “spring market.”  February and March are the precursor to this market, and January is a dead period when people go back to work as Christmas vacation fades into a distant memory.

Last night, I was continuing my never ending struggle to finish Alan Greenspan’s book “The Age of Turbulence.”  I started this book in December, and it just won’t end!  In Chapter 18, called “Current Accounts and Debt,” I came across a very interesting and thought provoking paragraph.  In response to an article in a 1956 edition of Fortune citing rising debt, Greenspan says:

“Today, nearly fifty years later, the ratio of household debt to income is still rising, and critics are still wringing their hands.  In fact, I do not recall a decade free of surges in angst about the mounting debt of households and businesses.  Such fears ignore a fundamental fact of modern life: in a market economy, rising debt goes hand in hand with progress.  To put it more formally, debt will almost always rise relative to incomes so long as we have an ever-increasing division of labor and specialization of tasks, increasing productivity, and a consequent rise in BOTH assets and liabilities as a percentage of income.  Thus, a rising ratio of debt to income for households, or of total nonfinancial debt to GDP, is not in itself a measure or stress.”

Alan Greenspan is one of the most ingenious economists of all time, and despite the current financial woes of the United States, you would have to believe just about anything the man says.  I do.

Any two-party politician gets a red flag right off the bat, and you simply must take what they say with a grain of salt.  But I personally believe that Mr. Turner is just out to sell books and is capitalizing on perhaps the greatest dilemma facing the Canadian economy: the real estate market….up….or down?

To pit Alan Greenspan against Garth Turner wouldn’t be fair.  One is a politician, and the other is an economist.  Make no mistake—Mr. Greenspan IS an economist.

I’m not denying that Mr. Turner’s book is interesting, informative, and a terrific read.

But from what I’ve seen so far, Mr. Turner relies on his opinion to back up his statements.

I like my information the old fashioned way: full of numbers, definitions, raw data, and…..you know……empirical evidence!  FACTS!

I’ll read Jose Canseco’s book before I read Garth Turner’s…

8 Comments

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  1. Al says:

    Turner’s advice is-” I have a house, but I can afford it, most people cant afford houses, so they should rent and invest elsewhere” Absolute nonsense, the man should be ignored. . When his house in Leaside was on the market I went into the open house. His walk in closet- eight pairs of cowboy boots. Dining room – a massive oil portrait of Pierre Trudeau’s face.

  2. […] wrote a blog post in March of 2008 called “Garth Turner: Bubble Boy” where I ridiculed his new book, “Greater Fool: The Troubled Future of Real […]

  3. JF says:

    To “Not a lemming” and Garth Turner,

    It’s almost 2012 now and the market is still pretty strong. Garth Turner wrote his book in 2007 (?), so it’s been 5 years since his ‘predictions’. Even if the market does take a downturn now, I would still say he was wrong since it is FIVE years later – way too much time has passed to say he saw it coming. It’s like saying that it will rain one day …

    If I bought a property in 2007 and sold now, I would be a lot wealthier.

    I do like his blog though – amusing stories and good writing. I also like his advice for people to watch their debt load and not put all their eggs in the real estate basket. Diversify!

  4. Say what you will about Garth Turner, but he’s been right more often than wrong and tells it like it is (unlike most politicians, bankers, realtors, etc…)

    I’m copying this blog to challenge you with your pompous comments and views when the s*** does hit the fan. Garth’s predictions are coming true – FAST.
    Hold onto your pants fools!

  5. Haltonjohn says:

    Turner is, unfortunately my MP. He says and does the stupidest things, often at the expense of others, to bring attention to himself. He relishes the reality that most of us in Halton think he is a ultra partisan moron. Since his Conservative colleagues kicked him out of the Party for being a blabber mouth, he has been on a hate-fest for all things Conservative. He votes for issues and then complains loudly about them. If we were all to take Turners real estate advice, our economy would tumble and burn. He suggests that most of us, sell our homes and rent. I guess he is not aware that real estate has been going up and down for a thousand years.

    What an idiot Turner is.

  6. Bart says:

    Garth Turner is a floor-crossing idiot! If you take advise from him, you get what you deserve!

  7. Lindsay says:

    Who cares what Garth’s book has to say – he’s sold me with his sexy leather blazer! Tres chaud!

    And his “diddle worthly” glare! humma humma!

    and maybe one day – when you’re old enough, I’ll explain what diddler means…
    ps why not condo stories – is this still the fall out from the complaint? I liked looking at the pictures for inspiration!

  8. Senior Citizen says:

    David — I agree that Garth Turner’s book should be read with some skepticism. The man has the varied, often controversial background of an outspoken, opinionated man — whether as columnist, two-party politician, now author. One must conclude that he’d say anything to get published/elected/sell books… While this can provide him with a lucrative living, one must question his statements, as you do!

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