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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

March 15, 2016 | Hopeless

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.

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Let’s share three charts. A couple are scary. The first is related to Betty’s plight. Here’s her story:

“Our $420,000 budget is hopeless. Open houses here in Vancouver are crazy and as long as you have your head on straight, you’ll always loose to those who doesn’t.

1) Seller’s agent calls ahead to pep talk you into giving best offer. The word “counter offer” doesn’t even exist anymore because all offers are presented once and that’s your only shot. Even our own realtor won’t talk about how much less we should offer based on the listing price but goes straight to how much MORE we should give over the listing price.

2) The most frequent buyers we see are young married couples or parents with a young adult. A common phrase we hear is “talk to your parents about it…” or “bring your parents back to see…”

3) Pre-build is asking for a total of 20% down for a shoe box that’s scheduled for 2019! By the way, a 961 sq ft 2bdrm box at this tower starts at $520,900.

It’s stressful and depressing that paying the full listing price is not enough to buy you a place. What happen to the concept if you pay what the seller asks, you will get the item? After losing a few offers, you are so angry and traumatized that you really do lose your head and over bid for fear of losing another one. In the meanwhile we’ve decided to rent instead of engaging in this crazy market and before we lose our heads.”

Vancouver (like Toronto) has a housing market with a casino mentality. People are being forced into buying decisions, and debt loads, which may well prove rash and destructive. Like all Ponzi schemes, it’s based on a single assumption – that things will keep going up and never go down. Only by believing this can people pay huge premiums and shoulder heroic borrowing. Otherwise they’d recoil at the risk.

Meanwhile, the kids are leaving. If you need any other proof this housing market’s unsustainable, I don’t know what it is. Other than the chart that comes next.

YVR MILLENNIALS

(Click to enlarge)

So the Fed bosses are meeting this week, but expect no change to US monetary policy. No rate hike. Not yet. Meanwhile the latest jobs report (record numbers of new hires), plus the financial markets’ performance, pretty much crushes the fear December’s rate increase – the first in a decade – would hurt. It didn’t. So more to come.

While Canada puddles, Europe slogs along and China’s opaque, the US remains the engine of global growth. The data is strong and conclusive. Expansion will continue, slow but relentless. Lower government deficits, increased employment & wages plus steady real estate appreciation and swelling household net worth. Americans are feeling good. More jobs. Cheap gas. House price gains. Higher incomes. Stock-stuffed retirement plans augmenting. In many ways, the middle class is back.

The current thinking is that interest rates will increase twice in 2016, most likely later in the year. The odds of this happening have jumped dramatically in recent weeks, based on economic data. If you believe this will not impact Canada, learn more. Over 90% of the time, our bond market, and our central bank, follow the American lead, albeit with a lag. So you have time to (a) prepare or (b) be a grasshopper.

FED HIKE ODDS

(Click to enlarge)

By the way, the gulf between the US and Canada is now wider than Kim Kardashian’s hips. For example, look at recreational vehicles, which Mark (he’s in the business) reminds us is a proxy for consumer spending and confidence.

“Things are just getting worse,” he reports. “Although the volume is low in January it’s an awful precursor for the remainder of the year. RV products are the first thing to go when times get tough, so this is 2007/8 all over again, Canadian-style.”

Registrations of motor homes in January (year/year) just tumbled 54.2% in Canada, while they increased 6.6% in the States. It’s an astonishing divide. Like politics. While the left-of-centrist, tax-and-spend Trudeau captivates worried Canadians with an eat-the-rich agenda, Americans see a billionaire developer rapidly morph into an icon for change. In Canada we attack wealth. In the US they still envy it.

Donald Trump this week passed the 50% support level among Republican voters. Tonight’s vote could put him over the top. He may be divisive, combative, intolerant and prejudiced, but the time for mocking has passed.

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March 15th, 2016

Posted In: The Greater Fool

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