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May 4, 2016 | Combustible

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.

 

The flames ripping through Fort Mac this week seem symbolic. What was once the nation’s pound-for-pound most ridiculously expensive real estate market is now smouldering – and in absolutely the wrong way. What a poignant reminder for everyone how all recent assumptions can be turned on their head.

All in all, it’s a bad week. The dollar has tanked over the last two days, after gloriously touching 80 cents US. Oil has retreated again, adding insult to northern Alberta’s injury. Isolationist, rip-up-NAFTA, America-first politician Donald Trump has emerged as a serious contender for the US presidency. Global growth is in doubt after crappy economic data out of Europe and China. Australia – a lot like Canada – is slagging so much they had to cut interest rates two days ago.

Worst, our trade numbers really, really suck.

In March we imported $3.4 billion more than we sold – which is a record. Said Scotia economist Derek Holt: “This is simply a horrible report.” He’s right. We shipped the smallest amount to the States since way back in 1993 – twenty-three years ago, during a bad recession. By the way, exports slumped the month before, too, and are down in 10 of 11 major categories. If Canada were a business, we’d be in a cash flow crisis and burning through the line of credit. Which, of course, we are. The federal deficit this year will probably hit $30 billion – and there’s not even an economic crisis.

This is not to bum you out. But rather to provide some context for the bizarre behaviour a lot of Canadians are now engaged in. The amount of stuff we sell to the Americans is the blood in our national arteries. If the US recovery slows (which it has in the last quarter) or a protectionist weirdo assumes office (now closer than ever), this impacts our entire economy. Markets know that, so the dollar has slipped substantially over the past few days. Meanwhile slowing global growth means dipping commodity prices, which also wounds a rocks-and-trees kinda place like Canada.

Against this backdrop, the economic clouds, the political headwinds and the towers of smoke over oil country, the average property in Vancouver rose in benchmark price to $1.4 million. In one year that’s a 30.1% advance – about 15 times the rate of inflation and twenty times the average growth in wages. It also means the average house costs 19 times what the average Vancouver family earns. In terms of global unaffordability, that’s off the chart.

Sales are running 40% above the 10-year average, mortgage originations are at a record level and there’s still no evidence that more than a minority of trades – estimated at 5% – involve offshore buyers. What’s happened in YVR is simple to explain. It’s a mania. A social obsession. Higher prices beget higher prices, once everybody expects them to go higher still. The level of risk now associated with Vancouver and entire Lower Mainland market is akin to those endless miles of tinder-dry trees waiting to combust in poor Alberta.

But the insanity does not stop there. The GTA and much of southern Ontario is living through the same suspension of disbelief – a time in which most people come to believe the unbelievable, to sacrifice realism and embrace a fad. Some of us have seen it before, with houses in the Eighties or dot-coms in the late Nineties – a widespread conviction it’s different this time, that a new normal’s descended. And it never happens.

Last month more houses sold in Toronto (12,085) than any April before. The average selling price rose 16%. The average detached house in 416 now trades for $1,257,958, or 19% more than a year ago. This is insanity. Prices are not supported by economic fundamentals, which means they’re being propped up on a tower of debt and hubris.

A week or two ago I mentioned having bought a geriatric pile of bricks north of Toronto which I restored into a country general store and ice cream pleasure dome. It opened this past weekend. But here’s the point. The operation requires about eight employees, and the worry was finding that many people with relevant experience in a semi-rural setting full of country estates and Range Rovers willing to toil for twelve or thirteen bucks an hour. Well, dozens of resumes poured in and there’s now a roster of sixteen workers with a dozen others on call, and as many who haven’t yet been contacted – all of them qualified. It seemed correct to spread hours and shifts around, since there’s obviously a need for work in the community (one of the GTA’s wealthier ones).

No fire here yet. No flames, incinerating our assumptions. But there’s more than a whiff of smoke.

How to help the folks in Fort Mac

YMMfire.ca – this site aims to help pair Albertans able to open their homes, rental properties, recreational properties, and other available space to people in need of somewhere to stay.

The Red Cross – this site links you to the Alberta Fires Appeal, where you can donate directly to assist Fort Mac fire refugees.

Edmonton Emergency Relief – a group of people dedicated to serving victims of fire and disaster by helping them with the basic supplies, such as household necessities, and furniture. All services are provided at no cost to the people in need.

Pray for Fort McMurray – a Facebook-hosted site connecting people who want to give with those who need to receive. You may donate here as well.

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May 4th, 2016

Posted In: The Greater Fool

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