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July 12, 2015 | Myopia

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Renowned for its namesake gooey bars, a few biker gangs, Diana Krall (hot) and some world-class strip bars, Nanaimo is a bustling little waterfront place halfway up Vancouver Island from BC’s somnambulant capital, Victoria. Over the past few months the city of 90,000 has slithered into the national spotlight for all the wrong reasons.

First, local realtors started pumping the local media about offshore buyers targeting the area. True enough, a Chinese developer stepped up to propose a luxury hotel on the waterfront, and various other high-profile commercial properties in the area have gone to investors from Asia. And, for sure, some houses have been purchased by people who are Chinese immigrants.

But what worked for the house-pumping industry in Vancouver – scaring the locals into thinking they have to buy now or every house will be gobbled by a dude from Guangdong – just backfired on the Island. A white supremacist group stuffed mail boxes with racist flyers exhorting the locals to stand up against the yellow peril. This was neatly followed by the spraying of outdoor bench ads placed by Chinese-Canadian realtors with swastikas and epithets. The mayor was appalled. The media did a 180 and was outraged. The cops got involved. And Nanaimo sported a black eye.

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As you know, this is a time-worn tactic of the real estate business. ‘Buy-now-or-buy-never’ is the strongest incentive local agents have to turn buyer ambivalence into a heady mixture of fear and greed. Today nothing inspires more emotion in BC than China. Even in Vancouver, the supposed epicentre of offshore investment, it’s not that Chinese are buying up everything, but the meme that they are which has driven locals to self-inflate the price of houses. Now it’s a crisis of affordability. There’s nowhere that real estate risk is so elevated. People from China did not do that. We did.

Well, back to Vancouver Island for a dose of reality. The regional real estate board is one of the most data-progressive in the land, routinely compiling a mess of info on who’s actually buying, and why. The latest buyer profile was published a couple of days ago and found 94% of residential real estate purchasers intend to live in the digs they’ve acquired, while 1.77% are investors.

And where do the buyers come from? Here ya go, you silly little racist, white supremacy weenies.

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So the big story this week happens Wednesday morning. That’s when the Bank of Canada will make its interest rate announcement. In Ottawa, at the bank’s fortress on Laurier Street, journalists will have been locked up for three hours studying the brief press release by the time it’s published on the BoC site at 10 am (you can check for it here). An hour later bank boss Stephen Poloz and his sidekick Carolyn Wilkins will hold a presser at the National Press Theatre down the street.

So, obviously, it’s a big deal. And there’s heated debate on whether Poloz will do the right thing and hold the line on rates, or cave to the dark side and cut a quarter point. BeeMo economists think he will nip. Scotia economists think not. Capital Economics’ David Madani seems to be lobbying for a reduction. CIBC’s Benny Tal warns any drop would be a game-changer.
“Financial markets are evenly split over whether the Bank will cut rates by 25 basis points to 0.50%,” says Madani. “With the economy seemingly in recession, we don’t see why the Bank wouldn’t lower rates.” Bank of Montreal’s Sal Guatieri cautions a rate slice would be, “another log on the fire for the Toronto and Vancouver housing markets. It’s not the amount that matters, it’s the message it sends to homeowners and potential buyers that rates are going lower rather than higher and will almost certainly stay low for quite some time. That just encourages more people into the market.”

The stakes are high. On the pro-cut side is the argument the economy is borderline recessionary, oil prices are junk, employment is mediocre and international woes have cut the value of commodities, and whacked us. Even PM Harper admitted this all over the weekend. On the no-cut side are those who say the last reduction did little to help the economy, but jacked house prices and fueled a big jump in consumer debt. With the US bound to raise rates by the end of the year, and Canada destined to follow, we’re setting ourselves up for a world of hurt down the road as epic debt resets and houses correct.

Then, of course, we have a federal election in about 100 days. If you were the prime minister, would you want a recession or higher house prices?

That sounded like a rhetorical question, didn’t it?

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July 12th, 2015

Posted In: The Greater Fool

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