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September 29, 2015 | For the Love of a House

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.

In June of 2002, three years before the US housing market collapsed in an event which nearly brought the world down, President Bush issued America’s Homeownership Challenge. The ownership rate spurted as a result of tax breaks, generous lending and government support. In 2004 it peaked at 69.2%.

Homeownership, said George Bush, “is the cornerstone of America’s vibrant communities and benefits individual families by building stability and long-term financial security.” Not long after, middle class families had lost trillions in net worth and faced personal crisis as real estate shed 32% of its value. No stability. No security. Many tears.

Since then, the rate’s crashed to 63.4%, the lowest since 1967 – almost four decades. Government, it turned out, pushed on a string, appealed to emotion and greed, encouraged excessive debt and helped create the worst financial crisis since the Great Depression. All for the love of a house.

On Tuesday, in a distant Toronto suburb, Stephen Harper wielded a nail gun, gave a presser and said this: “Homeownership provides Canadian families with financial stability and strengthens our communities.” The home ownership rate in Canada is 70%, thanks to historically low rates and an epic mountain of mortgage debt. The Conservatives have now pledged to push that to an unprecedented 72.5%.

Why? A party backgrounder lays that to rest. This is not so much about families, but trying to rescue the economy. “This target would support residential construction and local job creation. Nearly half a million Canadians are employed directly in the residential construction industry, a sector that largely employs local workers and contracts with small and local businesses. Expenditures in this sector are more than $100 billion per year and account for more than 6% of Canada’s GDP.”

The condo economy – encouraging more family debt and further inflating housing –   has blown up economies in the US, Ireland, Spain, across Europe and now threatens China. Mr. Harper wants 700,000 more households to buy real estate, pushing them to invest in assets which have never been more costly, at a time when interest rates are at low tide and posed to ascend.

He’s trying to out-Bush the Yankee president with a 40% increase in the amount people can suck out of their retirement funds to buy property; a permanent home renovation, get-a-hot-tub, tax credit; permission from CMHC to allow fatter mortgages for people with rental suites; and, in a sop to the xenophobes, a census of foreign buyers. Of course, the others guys aren’t much better. The Libs would allow people to dip into RRSPs to buy real estate with each live event, repeatedly, while the Dippers will give amateur landlords capital gains tax relief.

But, still, 72.5% is off the charts. A new benchmark for excess. And nobody should be foggy about the potential outcome.

Just this week we learned people have been gorging on loans like this was the Last Supper. New monthly mortgage debt is now increasing at the rate of 7.5% on a year/year basis, and already stands at more than $1.2 trillion – having doubled since the Tories came to power. Borrowing is the highest it’s been in almost three years, while the savings rate has declined and 51% of Canadians report they’re already living paycheque-to-paycheque, saying they couldn’t survive missing a single one. Is there any other government in the world so actively encouraging people into a one-asset strategy amid record debt and bubble prices?

Well, there used to be. That turned out well.

The homebuilders, framers, realtors, mortgage lenders, plumbers, developers and especially the bankers want this. Given the highly-conclusive but massively-maligned GreaterFool poll last week, it appears this is exactly what we’re going to get. Thus, we can all expect a systemic rise in real estate risk – Canadians thinking they can be safe and secure selling each other castles, on borrowed money and time.

I wonder. Has that ever worked before? Anywhere?

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September 29th, 2015

Posted In: The Greater Fool

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