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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

August 2, 2016 | Misery Week

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.

POKEMON-modified

Misery Week, part 2, was unfolding as the young couple sat across from me, secreting their house lust. With small kids, their goal is a $1.5 million place in the country. It would mean a million-dollar mortgage, soaking up all the windfall they got from the last house.

But you’re an entrepreneur, I said, looking at him, with inherent business uncertainty, no pension, a stay-at-home spouse and scant other savings. You’re buying at an inflated moment in the market, at mortgage rates that’ll rise upon renewal. Besides, rural properties are more illiquid, they cost way more to maintain and you want to retire at 50 – just when your kids are hitting uni. Risk on, dude.

Outside the storm was raging.

Not far away employees – all 500 of them – at Toronto’s Arc Productions were reading a notice taped on the door telling them to go home. The entertainment company was kaput. Bankrupt. On markets, the price of oil was sailing down through the $40-a-barrel mark as supply overwhelmed demand, in distinctly bad news for Alberta. In Washington Barack Obama declared Donald Trump to be “unfit” for office, “woefully unprepared,” and called on Republican leaders to dump him. In Ottawa, new stats were confirming what this pathetic blog suspected: real estate’s now the single largest industry in Canada at 13% of the GDP, or 20% if you add in property financing.

These things may not seem to be all that connected, but they are. The world’s moving in one direction. Millions of deluded Canadians are going in another. It’s been 60 years since the national economy grew this slowly, or housing was such a big part of it. But unlike the 1960s, families are now saddled with historic levels of debt. And mortgage rates are 50% lower, suppressed by central banks scared stiff of a beast called deflation. Sixty years ago people bought houses priced at three or four times their annual incomes. Today they use extreme leverage and buy at 10, 15 or twenty times.

I shared this with the kids. But were they listening?

Meanwhile, to the West, more misery.

“Remember,” my insider source said, “that I told you last month the Vancouver market was coming apart –  starting with detached?”

Quite so. Detached home sales in YVR tumbled about 9% in the last monthly report, with some areas off 40% – and that was before the BC Chinese Dudes Crash Tax was applied. Now the local realtors are about to announce a shocker. The number of deals has started to plunge – down 19% year-over-year and way worse on a monthly basis – a whopping 30%. Attached house sales also crashed 20%, and apartment deals were off 7%.

And while detached sales were crumbling, listings were increasing and prices eroding. A classic post-market top – the one we told you last month was coming. So just imagine the impact of shutting out foreign buyers – whether they amount to 5% or 10% of the totals – at a time when everything’s starting to roll over. Bubble meet prick.

Average detached prices are on the decline, and so are sales. Inventory‘s increasing. Demand is being artificially curtailed by government. The meme  that real estate’s bullet-proof is changing fast, and once the stats are published (tomorrow) the misery starts.

Why does this matter anywhere else in the nation? Because, as stated above, real estate is now the largest single industry in Canada. Its epicentre is Vancouver, now a global symbol of local stupidity. The decline there is unlimited, but certainly consistent with the two corrections chronicled here in recent days – 27% in Toronto and 32% in the US. That would take the average Van detached price down just over $500,000. With 91% of all properties in YVR now assessed at over $1 million, wow. Figure it out.

Where does this take us?

More risk. Prepare for it. Manufacturing in Ontario has been hurting despite a low dollar. The energy sector’s in trouble. Our biggest trading partner has a protectionist nimrod running for prez. Debt’s epidemic. And now the single biggest element of the economy shows signs of implosion. Maybe hero T2 can contain the mess, but you might want to have a Plan B, just in case.

Don’t have all of your net worth in one asset, at one address in one city. Follow the Rule of 90 to age-test your real estate. Have a balanced and diversified portfolio. Not too much maple – have twice as much US and international growth exposure. Own lots of asset classes. Buy REITs and preferreds for  growth and yield. Learn how things are taxed, then chase cap gains and dividend income. Eschew individual stocks (risk) and mutual funds (cost). Embrace low-cost ETFs instead. Channel the first bucks you invest into your TFSA. Shun debt. Just because the bank wants to lend it doesn’t mean you should take it. Mostly, think for yourself. Misery loves company.

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August 2nd, 2016

Posted In: The Greater Fool

One Comment

  • Avatar holly hallston says:

    Man, it really tries the patience sometimes. The ongoing excellent revelations about the idiocy of buying into the housing top along with the relentless anti-Trump swill. Might I remind you Garth, the the proposed X-el pipeline, which would have transferred gobs of Canadian and Dakota crude to the states for easier export got shut down by that idiot Obummer who was lobbied extensively by wunder-crook Buffet so he could pad his already bloated wallet with the monopoly on railroad crude he now runs. Ya Garth, that’s the same Buffet who’s pandering to the criminal Clinton, you know, the chick that wants everybody else to follow laws that apply to us not her and her cronies. No wonder you got tossed to a broom closet office by Harper if you’re that ignorant about the politico scam. But I forget myself, unlike the states Canada is already completely run by cronie corporatist whereas the States are hellbent on joining the Fascist scam via Clinton and the current political establishment. What complete dunderheads we ignorant plebes must be to wish a halt to that crap fest. So how’s the honeymoon between you and T2 going?

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