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January 28, 2016 | Shudders

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.


Patrick’s had a bad week.

“Our IT company shut down its entire Canadian branch office today with no warning,” he tells me. “All employees terminated, myself included. It’s not a great situation to be in, but with no debt (rent, no mortgage) and your recommended portfolio I think we can see it through. I shudder to think what people with mortgages and debt do when they’re called into a room and suddenly…”

Interesting times, aren’t they? Federal housing analysts this week said there was “strong overall evidence of problematic conditions” in Calgary. They added that there’s a strong “risk of correction” in Toronto, Saskatoon and Regina. Oh, and there’s a “risk of overvaluation” in Montreal and Quebec City. And in Halifax, prices are now running 7.5% lower than last year and the average days on market is a difficult 137, up 10% from a year ago. In Edmonton, sales are down 9% annually and listings have exploded – up 66%, says the local board.

Hmm. Calgary, Toronto, Saskatoon, Regina, Montreal, Quebec, Halifax, Edmonton – all generating expert concerns, or lousy stats. And most people think the whole country is in a Love-It-or-List-It real estate group orgy, for which you can thank Realtors© and their sycophantic media groupies. The truth, apparently, is that a significant number of markets now suck.

Quelle surprise. Even the T2 gang are running snout-first into economic reality, as Poor Bill Morneau prepares that critical first budget. National Bank economists this week concluded the Libs so misjudged the health of the economy that the next two years will bring $50 billion in deficits and new federal debt. Growth is far weaker than anticipated which means tax revenues are tanking while big infrastructure spending takes place. So it was probably a dumb time to pare middle-class taxes and tell voters that soaking higher-income earners would make up for it. We now know that was a fib. Another $1.4 billion in the red.

The bankers claim the potential for growth in the economy is “seriously curtailed,” although the pop-up in oil prices over the last few days helps. “We knew when we were campaigning we were facing a slow-growth environment,” Morneau says, begging the question of why Canadians were promised a tax cut, more special spending, a balanced budget in four years and lots of sunshine.

Oh well. Politics. Ya tell folks what they want to hear in order to gain office. Alberta’s NDP did the same. No news there.

Let’s get back to Patrick. He rents in Vancouver. And while so many Canadian real estate markets are entering into a more-or-less orderly correction, YVR is a time bomb with the potential to blow up and spray everyone. The last few days have brought more evidence the entire region is going moronic.

Below’s map shows you clearly. The green properties are valued over $2 million. The red ones are between one and two million. The blue ones (can you find any?) and under seven figures. Just look what cheap rates, house lust and popular delusion have done to a once-livable city…

VAN modified

This is the work of analyst Andy Yan who illustrates an incredible fact: in less than a year the number of homes assessed at $1 million or more in Vancouver has increased from 65% to an historic 91%. More arresting, these numbers are six months old, and prices rose another 4-5% since then.

Says Yan: “The low cost of borrowing over the last decade, the effect of global capital entering the residential market, a growing city population, speculative purchase behavior, a cultural and financial predisposition to home ownership versus renting and generational wealth transfer have all shaped the values of residential property.” And while people are quick to say it’s all the fault of offshore buyers, the fact remains that 95% of all trades are local-to-local. The blame here lies squarely on the shoulders of those who joined a speculative fever at odds not only with the rest of the country, but the national economy.

So, it spells risk. Not opportunity. “The economic, social, and cultural consequences in this environment of housing unaffordability has implications for the years and decades to come,” adds Yan, correctly. Anyone buying into this market is gambling. Anyone exiting is a genius.

The above should remind us that millions of Canadians are one paycheque from discomfort, and one job loss shy of disaster. Patrick will survive. Others, not so much.

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January 28th, 2016

Posted In: The Greater Fool

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