Blessed by the Potato

First off, a series of disclaimers.

1. I’m sick at the moment with a nasty hacking chest cold and I just chipped another tooth, so I’ll be looking at another stupid thousand-dollar crown in the near future. I didn’t even bite down on a tic-tac or anything like that: it was just that an old filling was starting to come apart, and I lost part of the tooth as the decay got in and there was only a small bit of natural, healthy enamel left holding the back quarter on. So it would be fair to say that I’m a little grouchy at the moment, so take anything you find offensive in the rant with that in mind.

2. Wayfare has accused me of wanting a housing crash and moreover of wanting reasons to delay buying a home for a few more years and having a case of confirmation bias where I seek out evidence and articles that support a crash coming to Canada. Likewise, I accuse her of the same thing, of wanting to fulfil the dream of homeownership right now so badly that she ignores the doom-and-gloomers and focuses on anything that indicates that now is the best time to buy (or better yet, that January 2010 will be). I hope that the downturn will be quick, like ripping off a bandaid, and that we’ll be back to decent values by then, but I fear it’ll take a few years, like it has in the States. Of course, our respective confirmation biases don’t really help the discussion one way or the other, but it’s important to acknowledge that I do look at the data with an eye to how that housing downturn is coming along.

3. I’ve ranted a few times before about the real estate market, so some of this may seem like a repeat. Hey, what can I say, I just don’t have that much new material, and it’s not that fast-moving a market.

On to the rant, which is really a series of interconnected mini-rants.

Rant #1: the Rent vs Buy rant. I talked a bit about the rent vs. buy calculations before, and discussed the merits of the two ways of finding shelter. In a comment at Bad Money Advice this was put even more plainly: you can rent your dwelling from your landlord, or rent the money for your dwelling from the bank. Anyhow, after talking with a few people (homeowners or hopeful homeowners) about how renting is not blindly throwing your money away some of them came back somewhat vehemently with two points: that you need to own so you can have control over the property, and the forced savings. For the latter a real-world example was used of several people (no one I know closely) who are unable to save unless forced to by a mortgage. Even though they knew owning would cost more than renting (thus depriving them of money they so love to spend) they would rather own because then they build equity. Now this is unfortunately the fault of the CMHC and zero-down mortgages, but someone who can’t save doesn’t need a house, they need help. Whether it’s a shrink or an inappropriately starchy friend with a calculator and some graphing paper, a mortgage is not the answer. For the near term, for the good times they will build equity by having to pay down that mortgage, but that isn’t enough. And, it puts them at risk: if they lose their job and can’t pay the mortgage and have no other savings they could get foreclosed on, lose their house, and their life savings along with it! Whereas someone with actual savings would just dip into that to pay the rent…

The other reason for needing to buy, to personalize your space, is way overstated. People don’t seem to appreciate both how much freedom you do have as a tenant and how little most people actually renovate. Heck, for the first three years after I moved out I had white, barren walls because I didn’t dare paint or put any holes in them. But you can paint however you want, the only stipulation in your lease agreement is usually that you have to paint back to white (or whatever it was) when you leave. Hell, look at my bedroom: the last tenant painted bugs on the walls for her daughter! (they were awesome, so we chose to keep them, which also let us take over the place a week earlier since they didn’t need to repaint, which made moving much easier) Likewise, you can put holes in the walls to hang pictures or install shelves, but you can’t get too ridiculous (I don’t have a legal definition on “ridiculous” though). Moreover, nearly anything is negotiable with your landlord: want a new fridge or stove? Heck, want a natural gas fireplace in the living room? If you’re going to stay there a while and were willing to pay for it anyway, why not discuss it with the landlord? Now of course it’s harder to bring yourself to spring for a full kitchen remodel, or to convince the landlord to bang out a wall to open things up, but those sorts of renovations are much rarer than people seem to feel they might be when they need to have that control — and vice-versa, people looking at condos will find they have much less control over radical renovations than they might think. Sure, at some point in your life you’ll probably want your dream home kitted out just the way you want, but you don’t necessarily need to get into that with the first place you move into after your parents’ basement.

Rant #2: the Silly Real Estate Agents rant. It should be said that there are a number of real estate agents that just need to be taken out behind the shed and put down. It’s a field with very little repeat business, low barriers to entry, oh, and it’s commission-based. So there’s a lot of incentive for agents to be greasy sharks, and to be constitutionally unable to see past their own efforts to rationalize that now is always the best time to buy. They pass off their failures to properly price the market as victories, but the thing that really cheeses my nachos is that they charge tens of thousands of dollars for their services, the most important of which is access to their exclusive listing system, and they can’t even take a minute to proof-read, or spend the $5 to have a high-school student do it for them. That’s leaving alone the issue of not taking advantage of the ability to post pictures to MLS.

Of course, not all agents are all bad, but they can have a silly side. One has a blog that I just found and read a few posts on. He’s a decent writer, and for the most part has his head on his shoulders, but still says a few silly things about property values. In one post he talks about the difficulties of assuming a tenant can pose to selling a property. The points he makes are valid, but he ignores the elephant in the room: that the condo in question is flaberghastingly over-valued (and what rosy realtor(TM) glasses he must be wearing to call it “a very attractive price”). While it can be a pain to deal with a tenant if you just want to just live somewhere, having one who wants to stay can make the life of someone looking for an investment property much easier. In this case a potential investor can’t fool themselves about what market rent might be, it’s right there in the listing that this unit screams overpriced. The asking price of $575k is 230X the monthly rent of $2.5k. At a generous 5% interest rate/opportunity cost on the purchase, the cash flow is already down to about $100/mo, easily coming to a loss with just the condo fee, let alone maintenance or vacancy allowances. Yet just two weeks later this guy talks about a four-plex being overvalued and having poor cap-rates, and at the current rents it is rough, at 270 times rent — but if he’s right and the rent could be $1600/mo for each of the four units, then it’s just 203X, a better buy than the very attractively priced condo he talked about two weeks previously! (and it could be better yet since they added a 5th unit to the basement!) One more example with a price-to-rent of 260X, yet the conclusion is “I’m shocked that this house is available at a ‘paltry’ $1,299,000. But I’m not so shocked that nobody is banging down the door to rent it for $5,000 a month…” Yet again he doesn’t see the buy vs rent logic: if the interest cost alone is closing in on $5000 per month, why wouldn’t someone who wants to live there consider renting it at that price? The only reason I can think of is conspicuous consumption/pride — people don’t rent million-dollar mansions.

There are other factors to consider, of course, not the least of which being the cracked foundation mentioned. But one distinction is that one was a luxury condo, and the other was just a regular brick four-plex. For some reason condos make people in this city stupid. You’d be hardpressed to convince a group of homeowners to band together to pay monthly for services they didn’t really need, like having a surly security guard patrol the neighbourhood at night. But, call him a concierge and have him nap behind a desk and you’ll get condo owners springing for it in their monthly condo fees every time.

To give credit where credit is due, I think anyone thinking of buying a pre-construction condo (if any still exist, as many pre-construction projects have been cancelled) should read his post on why that ship has sailed.

Rant #3: A Conversation With My Dad: In the mid-80’s, my dad left a small job at a major accounting firm to start his own company. His financial consulting business covered a lot of bases, but developed a focus on assisting clients through bankruptcy (or skating around it). In the late 80’s and early 90’s this part of his business took off, and one thing he had to do a lot of was evaluate and dispose of properties. I knew he had been all over Ontario and parts of Alberta looking at houses and to a lesser extent, office buildings, helping to arrange for hundreds to be sold, but I was just a kid at the time and there wasn’t really much call to talk about it since. With the downturn in real estate coming though, it’s looking like old times to him, with the first sign being the freeze in sales, especially at the higher end (and around their house there are dozens of listings that are now closing in on over a year for sale; others that spent months on the markets and were delisted, but still don’t have drapes in the windows).

We took a walk around the neighbourhood one day with the dog pointing out houses for sale, and ones that obviously weren’t lived in. The beginnings of the end could be seen in some, for example one house a builder obviously ran out of money and has been sitting with the inside unfinished. For sale, as-is 1.2M, or 1.46M if finished, and over a year on the market (in another realtor blooper, the picture with the for-sale sign and snow on the ground has a date of February 2008).

Oh, that listing I linked to above with the spelling errors? It’s actually been relisted with a new price and a new host of spelling mistakes (and oops, he also forgot to take the old listing down). $600k to $520k, a 13% decrease. Still more than I’d pay for that house, but getting there. An improvement over the 2% drop for the other pair of houses that have have been sitting for over a year just down the street from that one, and it might actually move.

Back in the very beginning of the 90’s he was faced with a client’s home to dispose of. It was in a small town north of Toronto, and there were a dozen nearly-identical houses all sitting for about the same price — their 1988 price. And some of them had been on the market for over two years without entertaining an offer. But since the last completed sale in that small, illiquid market might have been in 1988, that was the only set of comparables the agents had to work from. It was clear at that point that the only way to get things to move was to “lead the market lower”. So they put the house up at 15% less than all the other homes were at, and they got a buyer. That got the whole market for that town moving again — generally lower and lower each sale until it bottomed out, but at least people who needed to sell could.

This time around it is a bit different. Things are still fairly seized up, and sellers are hoping that the nice weather of spring will make it all better and they can get what their house is “worth”, but the buyers aren’t buying. Someone will probably start leading the market lower before the volume picks up again, but the low interest rates are confounding that, making things appear affordable because the monthly payments are lower.*

We also had a long, painful discussion about what to do about the family cottage in northern Ontario. Last October the stock market was crashing, and it was looking like we would have to sell the cottage; Wayfare and I were up there on our honeymoon, and we very nearly had to hang the for sale shingle on our way out. When things stabilized (however temporarily) and my dad’s heart stopped racing, we were thrilled that, while things were not as good as they were last year, they were not so dire that we would be forced to give up things like the cottage just to keep my parents in retirement. However, over the winter we had some really nasty weather, with snow squalls pretty much every week. My parents didn’t make it up there even once a month, and with my dad’s poor health it’s not like they snowmobile or go boating anymore anyway.

So the issue went from having to sell the cottage to one of maybe we should. On the one hand the cottage costs a fair bit every month to keep up, money that’s just wasted if my parents are only going up once or twice a month now (they used to spend more time at the cottage than in the city, when they did snowmobile and swim and paint the deck or cut down a tree just for the sheer hell of it). They could spend a few months in South Carolina every winter just on the money saved in property tax and energy, let alone the opportunity cost of the equity in it. While they used to sometimes go up just for a few hours and drive back the same night, the cost of gas is not negligible anymore, and not getting cheaper. Plus as painful as it would be to sell now, as frozen as the market is, it’s not likely going to get better in my estimation. We could be the ones to lead the market in that area down, since it’s still frozen for now, and get a decent price (even if it is ~20% less than what we could have got last year). I figure if they’re not enjoying it like they used to, my parents might as well sell it. Being down in London I only make it up there once a year, and my brother only goes a few times a year himself, despite still living in Toronto. However, the other issue is the long-term destiny of the cottage. Despite the expenses, might it be worthwhile to hold onto through the next few years of limited use so it’s still in the family when us kids have the opportunity to go more, when my sister and I finish school and move back to the city?

* – I drafted this in London before leaving for my dentist appointment, but after arriving in Toronto I see that the market, bewilderingly, isn’t completely frozen. There are a half dozen “sold” signs up, and the place across the street from Wayfare’s parents, that had been up for so long the paint on the for sale sign was fading also finally sold (though we have no idea how much any of the properties sold for). Of course, in some cases I have to wonder if the agents weren’t just putting sold stickers up on houses that were merely delisted: one had Re/Max (I think) sign up for 6 months that now has “sold” plastered on it, and right beside it a new for sale sign from another brokerage has cropped up. Either someone is taking this house-flipping thing a little too seriously, or the representation changed after no action was had and a misleading sold sticker was put up (I kind of doubt CREA regulates the use of sold stickers). While I’m a big believer in the rent-vs-buy calculation and price-to-rent ratios for determining when things are overheated, which to me points to at least a 25% downturn needed in Toronto, perhaps 10-15% is all we’re going to get if that’s all the price reduction it took to get these properties moving again… I still feel it’s probably a “bear market rally” driven by low interest rates, nearly meaningless tax credits, and buyers that couldn’t out-wait the sellers… but I’m not as sure of it any more.

There are a great many cheeses to choose from in the world; each Eurpoean town seems to have its very own (or one for each day of the year). However no cheese can hold a candle to Cheddar, the God-Emperor of cheeses. There are a plethora of positive attributes that make Cheddar the best: its ready availability, its gentle, non-footy flavour, its pleasing colour and texture. However, the reason that elevates Cheddar to god status is its omnipresence and malleability. No other cheese can transmute itself into so many forms, from organic dairy farm goodness to powdered horror and still be recognized as Cheddar. It can be mild or aged strong; uniform in appearance or marbled (my personal favourite). It’s good cold or melted, in solid cheese form, semi-solid slices, or powered and/or liquified. As a “flavour” it can appear on crackers, gators, fish, and a variety of other fried or baked snack foods that turn your hands orange.

In fact* Cheddar is so synonymous with cheese that in some languages/dialects Cheddar is the word for cheese, and the locals may know of no other types. The French word for cheese, fromage, comes from the word for mold or form, which is used in the making of Cheddar-like cheeses. Here at UWO we are going to have a brain imaging study starting very soon (as soon as we get funding and ethics approval and MRI time) that will objectively prove that when people think about “cheese”, they’re really thinking about Cheddar (and a non-significant activation in the “smiling for pictures” region of the brain). A serving of Cheddar contains 20% of your daily calcium & B12 requirement as well as all kinds of other good stuff, yet as little as 5% of the lactose of milk, making it suitable for lactards such as myself. It’s also stable in the fridge for over a month after opened, and up to 6 months before that, very important for shut-ins who don’t like to grocery shop very often. You can find it in the deli counter, the fancy cheese section, and the general dairy case in your local supermaket simultaneously, and that’s just for its most common chilled cheese form. Cheddar is also the only product that can be put between two pieces of bread on its own and still be considered a “sandwich” (indeed, two sandwiches depending on whether heat is available: a cheese sandwich or a grilled cheese — peanut butter requires the help of one other item, usually jam or bananas; bacon, itself a prince amongst meats, requires both lettuce and tomato to become a BLT). Cheddar is often the glue holding together other foods, originating all around the world, such as KD, quesadillas, casseroles, grilled cheese, nachos, and cheeseburgers (note that it requires two pieces of cheese to hold a cheeseburger together; this is not the common distribution of double cheese cheeseburgers, but should be).

Cheddar also does not rely on the action of mould, nasty fluffy stuff that invades your basement, to make the magical transformation from milk to manna in its wax chrysalis. Many other cheeses mistakenly went bad in antiquity, picking up mould veins or fuzzy coatings, and people ate them. Continue to, in their ignorance, despite the fact that starvation is no longer the only alternative, and that mould and fungi are not from one of the three kingdoms of life that humans have evolved to eat (plantae, animalia, and petrochemical). This makes Cheddar one of the few cheeses actually suited to human consumption and digestion, even without the purifying effects of fire cooking. If we need an antibiotic we’ll call you, Roquefort, but for something to put in my mouth I’m going to stick with Cheddar.

Yes, if it weren’t for the need to have mozza (the queen-consort of cheeses) for pizza we could in fact get by with Cheddar as the only cheese in our society. And we would be happy to devote ourselves to the God-Emperor of cheeses.

* – not an actual fact.

[Photo credits: wikipedia, flickr user srboisvert, Kraft Canada. The idea for this post came from Mr. Cheap]

Well, right on schedule, Rogers is forcing through another egregious price hike, in the face of a recession to boot. They’re increasing the price of most services, including bizarrely enough the price of basic cable, by 5%, much higher than the rate of inflation. Basic, analog cable that they are actively trying to phase out. Yes, I suppose increasing the price might get some people off of it (which is their goal, since digital is a cash cow for them), but it makes these price hikes seem like even more of a kick in the pants, since they haven’t put any work into basic cable for years now (at least with the internet they can claim to “add value” every time they hike the price and cut the cap).

I’m getting really sick of it, especially since I hardly ever watch TV anymore. Unfortunately it looks like we’re stuck with Rogers. I figured I’d be fine cutting the cable and going back to over-the-air TV as long as we got a half dozen stations (CBC, City, CTV, Global, maybe a few american stations if we’re lucky)… but we just borrowed a UHF antenna and only one channel came in — and it was A-channel. Ugh. I found that surprising. Maybe it’s something to do with London (I know in Toronto we can pull in most of those stations without an antenna, the signal is so strong), or maybe it has to do with the fact that we’re in a little bungalow with a series of giant apartment towers blocking any signal to our south side. It feels like we’re completely at Rogers’ mercy here.

That’s made even worse this year by the fact that I’ve just gone over a day without cable service — a whole day without internet! Right there that takes Rogers down to “zero” nines for reliability: 99.7% uptime and getting worse the longer I’m sitting here…

From today’s Globe and Mail:

Two recent leaks at the aging Canadian nuclear reactor that produces most of the world’s medical isotopes have heightened concerns about the unit’s safety – and the willingness of officials to raise a flag when things go wrong.
…
A small amount of radioactive tritium was released into the air, and about 50 kilograms of heavy water spilled into the sump below the reactor. “There was never any harm or impact to the employees or the community,” Mr. Coffin said.
…
“Of course, is the nuclear safety commission going to shut down that reactor for safety after what happened a year ago?” asked Mr. Bennett. “The people responsible for safety are afraid to shut it down because the last time they held up production, their president got fired.”

[emphasis mine].

This is a fairly minor issue at Chalk river, at least about as minor as you can get when you’re talking about a five decade old nuclear reactor. Things are probably still safe enough to continue Moly-99 production, for now. But the fact is Stephen Harper’s inept partisan ham-handedness last year has hurt the ability of the CNSC to do its job, and hurt the public’s perception of nuclear safety in Canada.

Hey, speaking of ancient reactors critical to nuclear medicine procedures all over the world, wouldn’t that be a great way to spend a few billion dollars to stimulate the economy? [Ok, actually it wouldn’t really help much because it would take years before any bulk construction was done, unless they just tried the same old MAPLE or NRU design again, but nonetheless, there’s still no succession plan in place…]

I am continually amazed at the lack of critical thinking in the general population and the media. I know that I’m a scientist and am therefore, you know, a perfect human being, blessed with capabilities mathematical and analytical in addition to citation searchical. Ok, maybe not quite perfect, but I will acknowledge that I perhaps possess a leg up in the critical analysis department due to inclination, training, and experience. Nonetheless, I’m amazed at some of the nonsense that floats around there in the ether.

For instance, the CNW “study” that just. won’t. die. Here’s where the big disconnect between common sense and reason lead to a meme that endures. The “study” in question claimed that a Hummer used less “energy” in its total lifetime (from design to daily driving to disposal) than Prius. That is something that goes against our common sense, kind of makes us sit up and take notice. Now, what’s supposed to happen is that one’s critical thinking and reason is supposed to kick in and say “hey, this really goes against our common sense: how does a vehicle that costs more money and uses more materials up front, and also uses more gas in an ongoing fashion, possibly use less total energy? I should check this out to see if it’s a neat factoid or total bullshit.” Then a quick fact-checking mission demonstrates that this is, in fact, total and complete bullshit and the thing dies there, and anyone who brings it up is mocked as a rube. Instead, the rubes pass it on without questioning it, and the illogic only serves to help draw attention to it. “Wow, Prius sucks, I’ve got to alert the Intertubes!” Whatever happened to extraordinary claims requiring extraordinary evidence?

I can forgive people for reading too much into patterns sometimes. For instance, nearly anyone who bothers to know anything about fuel economy knows that cars (regular cars — not talking hybrids here) are more efficient on the highway than in the city. But they have real trouble believing that driving slower on the highway saves fuel. After all, doesn’t going faster, like on the highway, save gas compared to going slower, like in the city? Ah, you point out, but there’s a point where the car is most efficient: 90 km/h, say. Going faster than that actually uses more gas. They think for a second, and the light goes on behind their eyes “Oh,” they say in a condescending way “I’ve heard that before, that’s why the speed limit was 55 in the States during the energy crisis. But that was for old cars. New cars are much better and can go faster.” Which, I have to admit, is exactly the right thought process, just the wrong result.

Likewise, for about 4 years there, housing was the best investment one could have: better than the stock market, briefly better even than oil. So you could forgive someone for lusting after a house, repeating nonsense like “priced out forever” and “renting is throwing your money away” or “real estate never goes down”. You might even forgive the same person who scoffed at the “payback period” for a hybrid car not running the same calculation for a house. The media didn’t even surprise me with their house porn and almost exclusively positive coverage of the bubble. I was, however, taken aback by the actions of our government, especially by easing the “margin requirement” (down payment) for a house. I know that they’re dumb promise-breaking neocons [ok, I won’t go there just now] and all, but still, someone should have known better. Then, as the real estate slowdown looks to finally be under way, a study comes out about the most over priced markets from UBC… and the markets it says are over-priced are not the ones people would think are over-priced. This is because of how they did their analysis: they included in their valuation a measure of how much a market has gone up since the last cycle: markets that went up more are not considered to be “bubblier”, but rather, more fairly priced in their estimation since they’re counting on further rapid increases. So the cities with the most rapid increase in prices are supposedly the ones that are less overvalued…

I recently chewed into Netbug about a post of his on environmentalism. He was arguing that man couldn’t cause global warming because, as a documentary that aired on BBC4 argued, we can’t compete with the sun. That’s just the sort of thing that’s great at misleading people (even otherwise smart people capable of Googling, like Netbug) — it has just enough ring of truth to it to make you believe it. This documentary makes a number of points which are true, but not important or worse, wrong-headed. Then it sprinkles in some minority opinions, a fair helping of conspiracy theory (global warming is a conspiracy by Maggie Thatcher to break the unions! Scientists take the dirty british money, but not the money of oil companies — no, if they did, they’d be richer and wouldn’t be doing some slumdog documentary film!) and some selective editing to sucker people in. Then Netbug finished off his post with a statement about how stupid the environmentalism movement has gotten with a clip from Penn & Teller about circulating a petition to ban water at some green rally, and all the people who signed it. Of course, that says less about the environmental movement in general, and more about people’s willingness to sign something they didn’t fully read or understand while at a rally.