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August 21, 2016 | The Emanator

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.


Two years ago mortgage lenders mocked this pathetic blog. It wasn’t hard. After all, houses were inflating monthly, and here I was cautioning the citizens of Canuckistan not to pickle themselves in debt, but to keep real estate exposure in balance with other assets.

Pshaw. Nobody cared. Least among them the people whose livelihood depends on handing out epic mortgages to the masses. “Predictions of a Canadian housing crash have been unsubstantiated and have emanated largely from one man: Garth Turner,” said industry publication Canadian Mortgage Trends back when brokers were gods. How embarrassing.

Of course, things have changed. “Financial advisor warns against pinning one’s hopes on housing,” Mortgage Broker News headlined a few days ago.

The continuous price increases in the high-demand housing markets of Vancouver and Toronto might be attractive to those who are looking to sell at a profit later down the line, but a prominent financial advisor cautioned against putting all of one’s eggs on the real estate basket.

Finance blogger and author Garth Turner described the dire situation faced by many young adults who are considering investing in Vancouver and Toronto homes.

“The liquid assets among 35-year-olds who have been working for seven or eight years is breathtaking. There aren’t any. Instead, all the cash has gone into lifestyle, a soul-sucking condo or repaying student debt,” Turner wrote.

Hmm. Change in tone. No wonder. I’m not alone any more.

On Friday the Royal Bank raised a serious alarm. Here’s what George Davis, chief technical analyst at RBC Dominion Securities, had to say about our hormone-drenched housing fetish:

“The housing market serves as the most prominent risk to financial market stability in Canada. We have been receiving an increased number of questions from investors about the underlying dynamics of the housing boom, along with key concerns and their potential implications for markets.”

No guff. Real estate and related activity now make up about a fifth of the total Canadian economy, and are even more consequential in delusional BC, where the local government has just enacted a tax basically promising a housing event. But RBC agrees with me, it’s not foreigners buying (before) or selling (now) that’s behind real estate excess. It’s us, and our inability to resist ‘affordable’ debt.

“The availability of cheap credit has stoked concerns that the economy may now be susceptible to a housing market shock as consumer leverage reaches a historical high… While foreign buyers may be small in terms of absolute numbers, they are often buyers of the high-end, luxury segment that defines the highest property price points.”

Exactly. Every time some greater fool Chinese dude buys a $40 million house, people in the market for a $1 million Van crack shack develop a serious case of FOMO, and, as Davis writes, “anticipate that recent price appreciation will continue into the future and rush in to purchase real estate in the fear of being priced out of the market or missing out on anticipated future gains.”

This is how the Canadian real estate market – at least in Vancouver, Toronto and (now) Victoria, Hamilton and other spillover areas – became completely detached from the national economy, where jobs and trade are in decline and growth has slowed to a crawl.

The bank (and me) is not alone. The chorus of warnings is cacophonous. Every major debt rating agency, the IMF, Capital Economics, CMHC, the World Bank, the federal bank regulator and bank CEOs have joined it. And yet in the past year total household indebtedness – already at a record – went up another 6%. House prices snaked higher to what appears to be a peak. It’s just so obvious that your friends, colleagues at work and idiot relatives cannot help themselves. Our one-asset national financial strategy carries on towards an uncertain conclusion.

Think 8 on the Richter.

In other words, of course there will be economic disruption if the housing market plops widely. Bank share values may be impacted, but don’t expect anything more consequential (they’ve spent years preparing for this). Jobs, however, will be affected, along with overall consumer spending, retail sales and industrial output – plus Bay Street will likely come off its current equity romp (the TSX has added 12.9% so far this year). For investors, that means keeping the balance suggested here in the growth part of your portfolio – about 18% in maple and the other 42% in US and international assets.

Meanwhile, if you’re anywhere near retirement and have hoarded the bulk of your net worth in bricks, well, you know what to do.

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August 21st, 2016

Posted In: The Greater Fool

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