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May 22, 2016 | Family Jewels

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.


“I couldn’t stop laughing,” says Jason. That was walking out of the local bank in Burlington, Ontario, after [email protected] said he & the wife were pre-approved to buy a $1.3 million house.

“When I asked what financial documents were required the banker just said ‘you could just tell me that you’re ok.’ I was floored, every time I asked the bank for money before it resembled a prostate exam but now we get this? I further inquired as to what that meant and the banker explained that ‘sometimes couples are able to raise money from families to finance their homes?’”

Jason’s point: with two kids and a workmanlike job as a security consultant, who recently sold their home (“which for the record was horribly built”) and are renting a 4-bedroom house for two grand (“rents are ridiculously low”), where’s all this house horny money coming from?

“My question is essentially, is anyone researching how much money the Bank of Mom and Dad are investing is our current real estate climate? I’m not saying that no one has ever got help in buying a home, certainly not myself as my parents gave me and my wife $10K for part of the downpayment on our first house. My parents received $2K from their parents, etc. Our first home did not have granite or heated tiles or anything resembling a house on income property or property brothers. Now things are INSANE!!”

Well, this weekend faithful readers will know I profiled two insufferable, snippy Millennial over-achievers who eschewed the house thing in favour of amassing a seven-figure investment portfolio, with my help. It’s doubtful they’ll ever own real estate, at least not in this crazy country. Part of their message: helo parents do their spawn a huge disservice by pushing them into the property game. No freedom. No flexibility. Limited liquidity. Max debt. All to end up just like mom & dad.

How much family money’s fueling this unhealthy and risk-filled bubble? No reliable stats. But surveys suggest more than half of all first-timers and four in ten mover-uppers are counting on parental support to get here.

And who do we all – politicians, the media, the envious – blame for unaffordable houses, bidding wars and price-jumping speculation?

Right. Foreign dudes.

Well, here’s an interesting set of numbers. Quietly each month the Vancouver Real Estate Board surveys its members and asks them about who just bought houses. You might believe realtors, or consider them pathological liars, but it’s unlikely a survey on the nature of people who have already purchased would qualify for creative jigging. Anyway, who bought in YVR last month?

Virginal first-time buyers (presumably Bank of Mom borrowers)

Mover-uppers who sold, then bought again (greater fools)

Speculators and investors (locals)

Condo refugees moving up to a detached house

Downsizers, cashing in the SFH for a condo

Foreign dudes

Here’s the summary graph. It looks astonishingly similar to the where-are-buyers-from results of similar surveys done by the Victoria board, plus the best estimates of the BC Real Estate Association, the Province of British Columbia and the Greater Vancouver Real Estate Board. So, come to your own conclusions.

YVR BUYERS modified

There are four reasons a detached house in Vancouver costs $1.8 million and $1.2 million in Toronto. First, mortgage rates are ridiculously low and, at 2.49% for a bank five-year loan, are an aberration of nature. Second, supply has withered while demand (because of low rates) has increased. Most owners think their houses are gold and, besides, they can’t afford to move. Third, speculation. When almost a quarter of all trades in Van were made to ‘investors’, for example, you can see why bubbles invariably burst. Finally, mom money. By all accounts, it’s now a torrent. So many families are getting 100% invested in real estate through inter-generational transfers that the true extent of the risk is unknown. But scary. Funds that should be sitting in TFSAs and retirement accounts for pension-starved Boomers are now being gambled through their kids’ condos.

Well, the fallout will not be pleasant. Rest assured, it will come. Maybe not this year, or next, or next. But the outcome will be similar to that of every other social mania. It’s just a shame that it will take so many kids down with it.

Except my brood, of course.

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May 22nd, 2016

Posted In: The Greater Fool

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