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May 27, 2016 | One Idiot

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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In a moment, a small but poignant example of the troubles we face. First, the latest reason why said pooching will occur.

The only banker in the world who actually matters, feisty little Janet Yellen, on Friday confirmed we’ve come to the end of cheap money. Two more rate increases from the Fed this year, the next one…soon. “It’s appropriate — and I’ve said this in the past — for the Fed to gradually and cautiously increase our overnight interest rate over time,” she said at Harvard. “Probably in the coming months such a move would be appropriate.”

That means the Fed boss is in agreement with her colleagues who have been busy tell reporters (and markets) to expect multiple hikes this year, next year, and beyond. The next one will occur on June 15th or July 27th. And here are the odds, following her words today:


So, it’ll happen, as this blog told you would be the case. No, moist Millennials, rates are not going to stay where they are for decades. And neither will house prices. What you do about it therefore seems quite clear: (a) lock in the five-year mortgage at 2.49% (or better) if you need to keep the house and expect to renew at double that rate (or better), (b) sell at this peak level and look like an omniscient friggin’ genius in two years, or (c) take a cold shower with your dog if you even think about buying right now.

This brings me to Sandy. She emailed yesterday. The exchange was short. Here it is.

Hi Garth. So my question is; what if you don’t have a lot of money to save, after rent payments. Would it not be better to be making those rent payments turn into mortgage payments? That way at least you are investing in SOMETHING, rather than nothing. By the way, we live in Toronto, where obviously both rent and mortgages are crazy. Thanks Garth.

Garth: How do you buy a house without money?

Well we have about 40,000 saved at this point. And we cannot afford a house so it would be a condo or townhouse.

Garth: What is your income? Your current rent? Family makeup? Savings rate? Ages? Jobs?

My husband and I are 34, and we have an almost two year old. Our combined incomes are 145,000. I am a social worker and he is a program manager at a not for profit. Our child is in daycare for another two years at about 1000 a month. After everything each month we put away about 300-400 in savings. Right now we pay 1800.00 a month in rent. I’m afraid to keep waiting to buy – it’s been years now and everything just keeps going up. I definitely feel we’ve missed the boat as our friends places have appreciated like crazy during this time.

Sigh. It’s hopeless. Two people, mid-thirties, minimal savings, professional jobs, university educated, with a kid – and clueless. They suffer from FOMO, sautéed with envy at leveraged friends who have what they do not. On an income of $145,000 they save a piteous three hundred bucks a month despite living costs of just $1,800. If they found a cheap 416 townhouse for only $650,000 and put 5% down, their savings would vanish and their monthly (mortgage, insurance & property tax) soar to $3,500. In other words, screwed. Impossible. With a child to look after, irresponsible. And yet Sandy moans like she’s a victim – missing out on an entitlement. “I’m afraid to keep waiting to buy…”

This is what real estate is doing to this place. It’s toxic. And every day that passes now, we’re a sleep closer to the resolution. Check back occasionally, and I’ll give you a date.

Well, let’s not end the week emotionally hooped. There are some people reading this blog who actually seem normal. Randy (in Calgary) has decided to join FIRECracker’s screw-the-house Millennial Revolution (last weekend’s event here) while Suzy in Van has some intelligence from the most expensive neighbourhood on the planet.

If you own a house, try not to worry this weekend. Seriously. You can always grow cauliflower.

Hi Garth, love the blog and read it almost daily. I rent a comfortable 2 bed/2 bath 1,400 sq ft. condo with numerous amenities, located in downtown Calgary.  When I signed my lease for $1,500 per month, I also had the option of purchasing the same unit for $275,000.  Had I purchased, the condo fees would have been approximately $950 per month and property taxes roughly $150 per month. My calculations put the price to rent ratio of this condo at 57,  before considering any additional costs of ownership beyond condo fees and property taxes. I have a roommate paying $750 per month on a month to month sub-lease for the extra bedroom, rent out the parking space for $275, and my girlfriend chips in $400 per month (plus she’s a great cook).  Yes, I pay $75 per month in rent living in a large, relatively upscale condo just a 10 minute walk from work. My annual income is modest ( just a little under six figures), but I max out my TFSA and RRSP every year, which has resulted in an overall tax rate of under 20% of my income over the first decade of my career. Roughly 60% of my income has gone into investments (mostly ETFs), while I live very comfortably on the other 20%, as a happy renter. The video you posted earlier this week about the millennial revolution sounded a lot like my story, as I’m approaching having full financial freedom. You are an inspiration and a bit of a contrarian in a sea of conformists, thank-you for your insightful blog!

Hey Garth – I live in Vancouver’s west side close to point grey and I’ve been noticing that properties aren’t selling quite as fast as they were a couple of months ago. I saw a commenter on one of your posts also mention this and I think they are right. For example one house was listed for over two months and just got taken off the market and also this house for example (see below) has been for sale for almost 3 months and just yesterday the agent changed (not doing her job?). I’ve noticed the same thing on my way home from work a lot for sale for over 2 months. Also a funny story – a friends neighbour sold their house for 500k over asking – everyone was shocked. The agent let it slip that while there were multiple offers all were low except for one. Same thing with a family friends house that just sold over asking. One offer below asking and one offer above but all people see it sold over asking. So all it takes is one idiot. Could this mean we have reached the top? Love, Suz.

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May 27th, 2016

Posted In: The Greater Fool

One Comment

  • Fred Roberts says:

    Hey Garth, do you really believe Janet Yellen when she says she’s going to raise rates?
    (I mean, did you check whether her mouth was moving at the time?..)

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