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January 14, 2016 | Nasty Nation

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.


So much angst, so little cauliflower. Since raising the issue of the buxom, snowy, virginal veg here on the weekend, it’s turned into an icon for our current dollar dilemma, drifting into the MSM. But enough. Let’s move on. The loonie’s not about to improve much until we see what the central bank has in store for us on Wednesday. Meanwhile stocks have bounced back and oil stopped suiciding. Debt, however, marches on.

There was an eye-popper this week from the pointy-headed accountants at BDO. A new survey found four in ten indebted little beavs will pay off nothing this year, and a huge number of them couldn’t withstand any extra overhead. In fact, this shows how extreme people have been with their borrowing, and how much job stress they’re feeling. The percentages below are the proportion of people who’d find it hard or impossible to make their monthly if…

Debt payment rises by $100: 29%
By $200: 46%
By $300: 62%
By $400: 77%
By 600+: 80%

Yikes. Almost half the population would start to fold financially if faced with two hundred bucks a month more. So where are they going to get all the extra money to buy weed? Obviously this is why 70% of us own real estate but 93% have failed to max out TFSAs. Moreover, it’s a contributing factor to the currency plop, the economic malaise affecting the cauliflower of the nation, and our dismal nature – on display nightly in the steerage section of this ageist, sexist biker blog.

Daily, Canada looks like a less attractive place for money to flow. The world gazes at us and sees a commodity-dependent nation in a cheap-oil world where nutso citizens have pickled themselves in debt selling each other houses at dumb prices, while jacking the top marginal tax rate over 50% as government revenues choke and layoffs swell. Is this a country you might wish to avoid? Obviously lots are. The dollar tells you that.

But let’s talk about Beth. She’s emailed me a few times now. Kinda germane to this drift. And this week I think her situation came to a head.

“Can I please seek your opinion?” she asked again. “I’m thinking of divorcing my husband because he just won’t budge and thinks real estate is bad to invest in. I will provide all information to you but if you end up making a blog about this please put my name as anonymous.” So, yeah, her name isn’t Beth. But what she expresses is so common in our society, going to the heart of why we’re at risk.

Beth wants a house in suburban GTA. “Please give me your take on what someone in my situation should do. Two average incomes, two kids, no property living in a family’s basement paying minimal rent ($900). It is time for my quality of life to change.”

So why not rent a better space, I asked?

“To rent a family home would be between $1500-$2200/month. Why in the world is my partner so adamant that if we decide to leave the basement that we cannot buy? It’s a fight that has been going on and I have been patient but I cannot understand nor can I say your blogs speak to my situation. How can an asset (that can be over priced) be worse to put our savings in than renting and paying someone else’s mortgage while we work our regular average jobs to support our family?”

I wrote back and discovered Beth & Hubs earn $116,000 between them, have two young kids, total savings (cash, RSPs, tax-free) of $125,000 and she wants to buy a house costing $700,000. The bank’s egging her on, offering $600,000 in financing. “It is entirely possible with these low interest rates it will be more but my partner doesn’t want to even see high numbers because they are adamant we don’t have enough money saved and will get screwed over.”

Well, the facts seem simple enough. To buy a $700,000 house with closing costs will take their entire savings and leave them with a six hundred thousand debt. Borrowing for five years at 2.6% means $2,720 a month. Property tax, insurance and a modest reno/repair budget (under $5K per year), plus the lost earning power of their down payment (at just a 5% annual return) adds another $1,520. So the house costs $4,240 a month – or double the rent.

Over five years it means an extra $130,000 in cash flow. Meanwhile they’d have zero savings, no emergency fund, no fund for their children, no capacity to put anything away for the future, nothing but heartache if a job were lost and $600,000 in debt, guaranteed to reset at a higher rate in five.

And now she’s thinking about divorce. At 32 years of age with kids. Over a house.

This is so Canadian. Borrow big. Roll the dice. Put it all on one trade. Forget savings. Be a fatuous parent. Feel entitled. And if you fail to get your way, in the teeth of caution and logic, lash out. Blame your spouse. Or Chinese guys. Some pathetic blogger. Or the Boomers.

But never yourself. That would be too nasty.

And now a message from blog dog John: “Where the Canadian dollar is headed…”


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January 14th, 2016

Posted In: The Greater Fool

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