- the source for market opinions


April 16, 2016 | Agony & ecstasy

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.


Ever wonder what other readers of this pathetic blog agonize over? Here are a few notes received this week that don’t involve telling me what I should do with my personal orifices..

“I’m an early 40’s married professional with 1 young child and a large dog, 2 incomes ($280k – $300k) and a small amount of debt,” says Norm. “We have been living in our first house (a 1940’s Etobicoke bungalow) for 13 years and paid it off around 4 years ago. We used the time without a mortgage to bulk up on investments and got a great deal on a cottage we purchased 3 years. The cottage mortgage is relatively small, around $270k. We have basically no debt other than the cottage mortgage, but feel stuck…..and feel poor…..

“We would love to move to a slightly larger home in a slightly better ‘hood (we have a small two bedroom bungalow with small kitchen and bathroom in the “up and coming” Long Branch neighbourhood of Etobicoke). We are not confined to moving within Toronto proper, homes in Oakville and Georgetown have come up that we really like but either sell in multiple offers at huge over asking prices within days, if we do have the chance to put in an offer we get blown away by ‘The Greater Fool’….. PLEASE HELP!

*     Our first option is to blow off the top of our bungalow and make it a two story, but construction prices are huge and a $400-$600k addition to our house (along with moving out for a year), doesn’t seem to make a lot of financial sense.

*         The second option is to sell and move. But I get a stomach ache when I think of adding a $500k-$600k mortgage (not including the cottage mortgage) to our debt free life at this point.

*         The third option is to shut up and live in our existing house and make some cosmetic changes to make the house a little more comfortable and get back to bulking up on RSP, TFSA and RESP contributions.

*         The final option is to sell and rent. Take the cash remaining after commissions, etc put that into a term deposit and use the income from that to subsidize the rent….Realtors and our own market overview makes us believe our house would sell for $700k-$800k….not sure how much monthly income we could get from that without touching the principal, but would love to get your thoughts….

“Of course the big hurtle with my final option is my lovely and talented wife….she thinks by renting we would be taking a step back and never be able to “get back into the housing market”….I blew my top at that comment given that with existing investments, little debt, and the proceeds from our house sale we would have a net worth in excess of $1.2 million….’how is renting going backwards when selling our Etobicoke pile makes us f&cking rich?!”

Piteous Norm, making $300,000 a year with over a million in net worth, house and cottage, and feeling poor. First World problems. But he sure isn’t alone in a place where real estate is sucking the wealth, and common sense, out of an entire population.

Options? Don’t build up. Turning an $800,000 bung into a $1.4 million two-storey on a street full of other bungs in a second-class hood is just dumb. You may never get it back. Selling and renting makes the most financial sense, since you’ll capture tax-free capital gains, stand aside when the market corrects and have serious liquidity and flexibility. But you certainly want nothing to do with a term deposit, which pays nothing (as opposed to a balanced portfolio), plus you need to solve The Wife Issue. Staying put sounds like a big compromise. And selling to move with a fat new mortgage means no more investing for a while. If that’s the only marital choice, then dump the cottage in the spring market and use the equity to invest in a 905 house.

But what does the dog want?

On the issue of Toronto prices, Jane asks: “Any idea when we can expect to see the inevitable decline in housing prices in the GTA?”

“Husband and I have been very lucky (sheer, dumb luck here!) and have a house that’s worth about $850k on paper.  We have a little over $275k left on our mortgage. No other debt and decent paying jobs. Like a lot of people, we have some liquid investments (about 100k in RRSPs, TFSAs and an RESP for the kid) but not enough.  We’re in our mid 30’s. We’re planning to cash in and move a little farther west….maybe pick up a house in the $650k range.  Goal is to try to wipe out as much of the mortgage as we can and plump up the investment accounts. Do you think the tipping point is this year, or will this be a gradual slide over the next few years?”

Of your $700,000 or so in net worth, 85% is in one asset. Not smart. Too much risk. A goal for you should be to try and diversify over the next few years, and (like Norm) harvesting that taxless real estate gain is a big step in leaping ahead financially. So I concur with the plan to bail and then buy further out where men are still men and don’t ride Vespas.

Your question then, is when? Once a correction start,s listings will quickly multiple and buyers begin pushing prices down – the opposite of current conditions. Seems 2016 is fairly safe in the GTA, given the paucity of supply and the paunch of demand and the fact rates will hold until the end of the year. But then, why wait? You may not see a seller’s market this hormonal again in your lifetime. Milk ‘em.

Now, Norm and Jane, meet Rob. He lives in the Fraser Valley, where Vancoueritis has recently infected the locals, and his is an example of rational, contrarian thinking.

“I have been waiting a long time to write you this letter. You advice and this crazy market got me thinking, and after discussing it, my wife and I agreed it was time. We put the house on the market Thursday (we paid $500K for it), open houses on the weekend and accepted offers Monday evening. We accepted an offer of just under 1 million dollars (almost 100k over list!!). It was an unconditional offer accepting all our terms. The most important being we will rent back 1/2 of the house for $1,500 per month for a couple of years!

“I am 55 and now I know what that slogan is all about…..I feel free!!!

“But here’s the kicker that makes me think I sold just in time. We had about 10-12 groups ready to write offers, when all but 3 pulled out at the last minute. “Not going to get into a bidding war” “The prices have just gone too high” ect was the reasons given among other similar ones. You wrote about buyer disgust? It is there now! By the way, the family that bought the house was a nice Canadian family of four. Not sure that matters. Doesn’t to me….”

There isn’t much doubt who we’ll all envy a few years from now.

Oh, I forgot? Like in Edmonton and need a new Porsche? Lucky day, dudes.


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April 16th, 2016

Posted In: The Greater Fool

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