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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

August 14, 2015 | Scary

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.

 

“I’m sure you get loads of these types of emails,” Trevor says, sucking up, “but I am probably guessing most of them do not come from someone in my line of work (I’m a certified financial planner)… I am sure it can give you some material for your blog.”

So what is it that big-time advisors with a string of letters after their names worry about? Which offshore hedge fund to warehouse the two million they made this quarter? What model Porsche to lease this month? Not exactly.

“I’m looking for your opinion on whether or not my wife and I should keep the home we are in here in Edmonton (which we are looking to be out of in the next 5 years or so – location is not ideal for raising a family) or if we should sell it and rent (since I share the same views as your blog about the almost definite future).

“Our current situation: $130,000+ in RSP/TFSA/LIRA between the two of us (growth stock mutuals); bungalow built in 1982 – paid $350,000 (2013) and owe $260,000; no other debt. So, should I just shut up and hold on?”

Seems Trev puts on his pants one leg at a time like everybody else. Being an expert in a bond’s yield-to-maturity or fundamental analysis doesn’t mean you avoid being a nob when it comes to running your own life. So our advisor has $480,000 in assets, $260,000 in debt and $220,000 in net worth, assuming his house hasn’t gained in value over the past two years.

Safe bet. The market’s been losing traction for some time, and last month went firmly into reverse. The average sale price of single-family homes dropped almost 2% (to $436,948) – a huge dip for a single four-week period – while sales tumbled by 9.8% (also epic). The average number of days it takes to sell (among those places that did find a buyer) continues to rise, and now sits at 50.

Meanwhile oil sputters, closing out Friday at just over $42 US, the lowest point this year. (Twelve months ago a barrel was fetching $95.50.) There’s now good reason to believe crude will stay sub-$60 for a long time. Three years at least, says Moody’s. That should further hollow out the oil patch, with the kind of pain now being felt in Fort Mac drifting south.

So, Trevor, why wouldn’t you bail, since you don’t like the place anyway?

Besides, look what’s happening: the latest CREA numbers are scary. Resale housing activity has just fallen in half the country’s markets (including Deadmonton), which surprised a lot of analysts who thought the Bank of Canada’s July rate cut would send the house-horny into a new state of arousal. But not this pathetic blog. As stated long ago, there comes a time when interest rates can collapse to zero, and the market still stalls. Looks like we might be there.

This happens when home ownership reaches a point of saturation (above 70%, which includes most people who can stand up or pucker), when household debt sucks off most family income, and when folks start worrying if their job will be erased by a sliding economy. Hence, our two-city housing bubble, with YVR and the GTA burning hot while the rest of the country blows smoke.

Says Scotiabank’s alluring economist Adrienne Warren: “There is the potential for increasing uncertainty and downward pressure on consumer confidence and home prices if the global and Canadian economies are unable to generate increased traction, and unemployment begins to adjust higher.”

Speaking of scary, the country’s biggest new home-builder now openly worries that house lust has created massive risk. Mattamy Homes president says he frets over what will happen when interest rates inevitably rise, since people have deluded themselves into believing it cannot happen.

“The scary part is the home building industry has really responded to a consumer who now thinks of housing as how much does it cost per month, not how much does it cost in total,” he told BNN. “When you think about where interest rates are likely to go, we could suffer some real pressures as people struggle to afford these houses as interest rates rise.”

Okay, Trevor, let’s review.

You hate your house. Edmonton real estate’s in a funk. It’ll get worse. Oil is a mess. The jobs picture is growing darker. Toronto or Vancouver won’t save you. The Bank of Canada just fired a blank. And the industry’s bracing for a rate shock.

Why would you possibly want to hang on to your little bung with its mortgage, given all of that? If you can get out now, realize $90,000 in equity and add it to your investment portfolio instead of seeing it erode along with your houses value, well, duh?

By the way, if you need ace investment advice, you’ve come to the right place, baby. The people who read this blog know everything. Damn straight

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August 14th, 2015

Posted In: The Greater Fool

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