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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

November 10, 2015 | Surprise!

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.

 

Lest we forget: Corporal Nathan Cirillo's dogs have not.

Well, so much for that. The Conservatives apparently left four surprise gifts for the boy wonder:

(a) a sucky economy which will grow 50% less than forecast (I told you this was coming during the election, now confirmed);
(b) No balanced budget next year, but a $3.3 billion deficit instead;
(c) Budget shortfalls of $4 to $5 billion per year for the four afterwards, and;
(d) A looming real estate plop. Canada’s Parliamentary Budget Office warned of the above on Tuesday, plus, “we now anticipate a larger correction in residential investment.”

So the Trudeau plan to run a $10 billion deficit in each of the next two years is suddenly uncertain. It will be way more. Gone is the ability to return to balanced books by 2020, which means all of the Liberal mandate will be one of red ink. Added to the disgraceful Harper years, during which $170 billion in new debt was added, we’ll likely go at least 13 years of living beyond our means.

Isn’t this completely consistent with a country where citizens have pickled themselves in debt, adopted a one-asset strategy, and are completely unprepared for a normalization in interest rates? Good thing we might be legalizing weed. Say, did Ashley Madison make it into the Cabinet?

Well, tomorrow’s blog will be all ponies and sunshine. Trust me on that. But today? Not so much. Here’s why you’re insane to buy a house right now, especially in YVR or 416/905 – at least according to these guys:

  • “The risk of a severe home price correction in B.C. and Ontario has risen to a medium probability event given the continued run-up in prices in Toronto and Vancouver,” says TD Economics. Yes, the same bank that makes mortgages, so you can imagine what the real story is.
  • Any correction in prices will crush the young and set the real estate dominoes falling, says the Centre for Policy Initiatives this week. A 20% drop would put 260,000 families under water, more than half of them virginal owners in their twenties or thirties. And you thought it was all about facial hair.
  • Thanks to leverage, a 20% housing drop would wipe out 40% of their net worth and a 30% decline (it happened in the US a few years ago and in Toronto two decades back) would erase 60% of net worth. Gulp.

CORRECTION

  • “The evidence of overvaluation has increased since the previous assessment in Toronto, Vancouver, Montreal, Edmonton, and Saskatoon as price levels are not fully supported by economic and demographic factors,” says CMHC. Yes, the guys responsible for much of the house-pumping in Canada, who actually see all the mortgage data (which you don’t).
  • Regionally, TD Bank adds, homeowners in Ontario and BC have the most to lose (of course, since they rode prices higher). But the bank is also worried about Manitoba and Saskatchewan, where household debt is romping higher.
  • Calgary, of course, resembles an impending trainwreck. Actually a local office-leasing specialist calls it “a bloodbath.” “We’re at the highest point of fear and uncertainty now,” he says. Commercial vacancy rates are at a five-year high and rents have fallen to 2006 levels. Meanwhile a massive amount of new space (almost four million feet) will come to market over the next three years. Ouch.
  • Commercial space is emptying out because so are the jobs. No wonder last month saw the biggest price decline ever in Calgary house prices, plus those auctions in which luxury digs went for a 60% discount to appraised values. Home sales last week were down 29% from last November, while October deals plunged 32%. As local realtor Mike Fotiou points out: “There are 25.5% or 1,154 more homes on the market than one year ago.   The 650 new listings month-to-date is the highest since 2008.”

No wonder newly-minted but gender-challenged Finance Minister Bill Morneau was pushed out the door to do damage control Tuesday afternoon, after his department gave the media a scant half-hour advance notice. More deficits, more debts, a looming Fed rate hike and so many flashing yellow lights – none of this was in the plan. Where’s the hope, Billy?

Not much, as it turned out. Morneau’s debut was a disappointment – a canned statement followed by a canned media release.

Finance Minister Bill Morneau today spoke about the need for smart, strategic investments to jump-start the economy and create new opportunities for growth. Referencing a report issued today by the Parliamentary Budget Officer, which projects a small surplus in 2015–16, followed by five years of deficits, the Minister confirmed his intention to issue his own Economic and Fiscal Update in the coming weeks.

“Today’s report will certainly help to inform my assessment of Canada’s economic outlook and fiscal projections, alongside input from both public and private sector partners, and Canadians themselves,” the Minister said. “We intend to bring real change to Canada’s economy through a strategy that combines fiscal discipline with investments in economic growth.”

Citing a transformative investment in infrastructure, the Minister pledged to reorient the economy towards sustained growth.

“I continue to work closely with officials at the Department of Finance, and look forward to providing an accounting of our new fiscal reality very soon,” said the Minister.

I wonder if he regrets leaving that $1-million salary yet. He will.

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November 10th, 2015

Posted In: The Greater Fool

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