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August 31, 2015 | Kids

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.


On this day 25 years ago a five-year mortgage cost 13.75%. Seriously. And that was an improvement from where it had been a few months earlier. Discuss that with your basement-dwelling, condo-lusting Millennial spawn over dinner tonight. They’ll think you’re a scaremongering old fossil.

I mention this because RBC did, sort of. The bank’s latest non-affordability report says Vancouver’s insane (we knew that) while buyers in Toronto are “approaching 1990” conditions. That means it’s almost as hard for folks to buy digs in 416 today as it was back when Linda Ronstadt could still wear Levis.

Of course high rates aren’t the problem now. Five-year, fixed-rate mortgages are available everywhere in the 2.5% range. The problem is price. In 1990 the average Toronto house traded for $255,020. Ten years later the same house was worth less – $243,255 – because rates stayed high. By 2010 it had mushroomed, to $431,276, as our current era of cheap money began. Today the GTA average is $609,236, and rates have bottomed.

Logic then dictates the negative correlation between house prices and the cost of money is bad news for the next decade, as we head towards rate normalization. (The US Fed kicks this off in the next few weeks.) It also means when RBC uses a word like “critical” regarding affordability, this is probably the time to be doing anything with your money except buying a house – at least in the bubble markets.

Well, here’s Ed. I include his note to prove that even the 1%ers among us can sometimes lose their way. Fortunately, they all read this pathetic, free blog. It’s a cult thing.

“You don’t seem to have a shortage of these emails,” he says, “but thought I would throw my hat into the ring. Here’s my story…”

So Ed took my advice and sold his McMansion plus six rental properties in BC, and now has $3.5 million, “in a fully diversified GT-style portfolio” managed by two smart guys he pays 1% to. In his late fifties, he earns $200,000, rents for $2,300 a month and is starting to mull retirement. “We might buy in a couple of years when the current lease runs out, maybe a 20-year house, leaving feet first.”

So why is Ed writing, other than to piss off all the little socialist, Norway-loving, Millennial underachievers who stumble in here by mistake just because Stephen Harper hates me? Family, of course.

“Our son earns $100,000 a year and our daughter-in-law has a classic case of house horniness, which is somewhat reined in by her husband, by watching their investment portfolio of $250,000 grow, and by reading GreaterFool.

“So here’s the question.  Part of the reason for the current situation is that my wife and I have been (I think) diligent about not cultivating a sense of entitlement – either in our own or our kids’ lives.  Of course we can afford to lend/give significant $ to our kids to give them a leg up in the housing market (and want to) but feel that in order to be productive and useful to society we (all) need to be a bit “hungry” as well. Where’s the balance? Any ideas as to how much, when, etc.?”

First the legal stuff: there are no restrictions in Canada on gifting money or property to your adult children. We have no gift tax (unlike in the US) so none of this money will be hung on them as income nor any investment proceeds considered capital gains. You’re free to slide your adult kids all the cash they need to max out their TFSAs, for example, with all the tax-free gains going to them. Or you can hand over your real estate without attribution or consequence, for that matter.

But should you?

First, there’s the incentive argument. Gifting a million bucks (or half that) to your kid so he can move his family into a luxe house is not exactly an exercise in building character. This is not akin to handing over equity in the family business, of course, or even cutting your adult son into half-ownership of your scallop boat. It’s simple, unadorned largesse delinked from financial merit.

Second, Ed, why would you finance a real estate purchase for your horny DIL when you yourself have decided this is an abysmal time to be invested in property and a great time to be on the sidelines? How’s it doing them any favours to grab an asset with a precarious future?

Third, does the kid really need it? Just because he’s your seed? After all, the couple seem to be doing fine in terms of income and savings. Perhaps the best path is to leave them with their own accomplishments and rhythm, instead of blowing it up with parental moolah.

Finally, is there nothing better to do with money you don’t need than give it to someone who doesn’t deserve? How about saving homeless donkeys? Or those poor Syrian refugees throwing babies over barbed wire fences? The mutts in the local shelter? The humanity on the Lower East Side? Terry Fox?

Dammit, Ed. Now I’m all misty and altruistic. Kills me.

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August 31st, 2015

Posted In: The Greater Fool

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