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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

August 7, 2016 | Not So Hot

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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Saturday night, Vern was at a cocktail party in Calgary.

Yes, they still have them there. Quaint. Very Stepford.

“So I asked 15 or 20 people what they thought about the Jobs Report,” he says. “I got blank stares every time.”

As you know (of course), the report Vern references came out Friday and it sucked. The country lost 74,200 full-time positions, many of them in Ontario manufacturing, while creating about 40,000 part-time McJobs. The net result was a loss of 31,000 paycheques while the Americans added 255,000 in the same period.

Making it worse were the trade stats. Our trade deficit is at a record as exports decline – despite our currency turning into a dolarette. In June we imported $3.63 billion more stuff than we sold – a net outflow of capital from a country whose economy is now contracting.

Here’s how the trade thing’s going. Look out below!

TRADE DEFICIT

Back to Vern and his cocktail chatter. Maybe people in Calgary (and elsewhere) can be excused for not knowing what the current trade deficit is, or that we actually have one, but the jobs situation is another matter entirely. Listen to what Ann-Marie Lurie, chief economist at the local real estate board has to say: “Continued pullback of sales activity is a sign of economic conditions. The number of unemployed workers keeps rising, and when you combine job losses with declining net migration, the result is going to be weaker housing demand.”

Bingo. So for 20 of the last 20 months, fewer people have been buying houses in this major Canadian city. In fact, as this blog demonstrated last week, there’s a similar pullback happening in most major markets. Apparently, without people knowing about it.

“I wish I had this chart to show them why jobs matter,” Vern says, of his distracted friends. It’s from the Calgary Real Estate Board. Not good.

CALGARY CHART

Whether people in other cities believe it or not (most don’t), the overall Canadian economy’s remarkable current weakness won’t stop at Cowtown’s city limits. It’s being felt in southern Ontario towns where car seats and dashboards used to be made, in the Maritimes where nobody’s flying west to work in oil and the offshore rigs are quiet, plus in the lives of countless middle-aged execs and managers everywhere who’ll never be hired again. Anyone convinced this won’t affect real estate, confidence, spending and the economy is deluding themselves. It’s a more dangerous situation facing the Canuckistan middle class now than back in 2009.

Jobs matter. More than cheap mortgage rates, dumbass taxes on foreign buyers, dwindling listings, the price of oil or demographics. On the weekend, BMO head honcho economist Doug Porter called the labour and trade numbers a “gruesome twosome” which were “notably weaker than expected.” And remember that this comes on the heels of a report showing the economy shrank by 0.6% in the latest quarter – despite a 65% surge in oil prices since the winter and a 75-cent dollar, intended to make our exports cheap.

So what does all this mean?

That things will likely worsen before they improve. The risk associated with Canadian residential real estate (not the kind Doug Rowat wrote about yesterday) is augmenting, dramatically at odds with what people actually believe. Linda, a well-heeled blog dog, ran into that last week…

“So I’m shopping for a condo townhouse in Toronto and the woman who owns one I like, listed at $1.65 million told me not to ‘waste her time’ if I’m going to offer less than $1.7. The taxes and condo fees on this thing are $18,000 a year and it has a $5,000-per-year special assessment for the next four. I hate what this market is doing to people…”

Don’t we all? The nation’s in denial. Sleepwalking.

Remember those realtor survey stats last week showing most millennials plan on buying a house in the next two years, with almost eight in ten saying real estate is a great investment? Odds are 80% have nothing in their TFSAs, no net worth, and are totally okay with chowing down hundreds of thousands in mortgage debt. Guess how that will work out?

Well, don’t underestimate the potential consequences when people wake up. Always have a Plan B. And love liquidity. Cocktails don’t count.

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August 7th, 2016

Posted In: The Greater Fool

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