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September 7, 2016 | The Zombies

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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Last month house sales soared in Toronto and plunged in Vancouver. Everywhere else was boring. As this blog has spelled out a nauseating number of times, all markets are local, even though they share a remarkably similar economy. So what’s happened here? Why the tale of two cities?

That’s easy. Both are inflated gasbags where average families are being pushed to the wall to gain homeownership. Debt’s hit new levels even as mortgage rates plumb new lows. The sacrifices real estate now demands affect all other aspects of life. It’s a true obsession.

(Half an hour before downing the scotch required to write this blog I walked Bandit down Main Street past a local real estate office with listings posted in the window. There were 11 people on the pavement, scouring them. It’s a daily occurrence.)

So why did Van start rolling over a few months ago, and then plop in August? Because we hit peak house there – a price level so extreme ($1.7 million for the average detached) that local incomes can’t even come close to sustaining it. Speculation, house lust and debt snorfling took their toll. Activity peaked in late winter, and had been eroding since. So when the foreign buyer tax was applied, it was all the catalyst required to begin the broad-based correction, even though Chinese dudes (by all accounts) do less than 10% of trades.

Can this happen elsewhere?

You bet. The catalyst could be more taxes, higher rates or (more likely) your idiot neighbours, family members or employees who have no idea they’re in trouble until they are. And then we all are.

Let me share an email thread with you, dated September 7th, with Kimberly:

Her: Good morning. I saw your information online and I decided to take a chance and contact you. I am looking for a financial advisor. I am tired of being in the same position in my life. I currently have a good job working for the city with a potential to earn a lot of money. However I want to retire early so I can do the things I love to do in life without worrying about working for someone else. I need help. My husband and I have no children but we want to increase our family soon and buy a house. Thank you for your time hope to speak to you soon.

Me: Thanks for being in touch! Can you please tell me something of your financial situation?

Her: Well I have a few credit cards totaling about 8,000. I have 2 car loans totaling about 550, and our rent is $1,300. Car insurance about 370.

Me: Do you own any assets?

Her: No

Me: So how did you expect me to assist you with your finances, if you have no money?

Her: I want to invest!

Well, there ya go. Employed with debt. No savings or assets. Wants an early retirement. Planning on a family and a house. And not richer than she thinks. The really scary part is that this is mainstream. It’s becoming the norm. These people live among us!

Any doubt of that should have been wiped out by the latest survey of the Canadian Payroll Association. Wow. How sad is this?

  • Half of people would be screwed if they missed a single paycheque. Even for a week.
  • Four in 10 spend 100% of their net income.
  • A quarter don’t have $2,000 and couldn’t get it within a month.
  • 50% can’t save 5% of what they make and 39% are ‘overwhelmed’ by debt, mostly mortgage debt.

And, yes, 70% of us Maples own real estate, on which we collectively owe $1.2 trillion, at interest rates which can only rise, in a country where the economy is contracting and net job creation is negative. So, what are we thinking?

Most, like Kim, aren’t. Zombie-like, they shuffle through life feeling entitled. Kids. House. Short career, long retirement. Little financial discipline. Less literacy. No clue. And there appear (from surveys like this) to be millions of folks in the same space. These are the ones who have helped create, and now maintain, the real estate bubble where a huge amount of everyone’s net worth resides.

If there ever was an argument for diversification and balance, Kimberly embodies it. When half of us are a single week away from a financial crisis, yet GTA house sales and prices continue to soar, risk is palpable.

In a land of fools, it took relatively little to push the Van housing market over. It won’t take a lot in Toronto, either. If you doubt, look around the subway tomorrow.

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September 7th, 2016

Posted In: The Greater Fool

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