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November 15, 2016 | Damage Control

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.

Puppy getting in trouble

In early summer Paul (from Kelowna) told me about his octogenarian father. The old dude was living in a pre-fab home in the wilds of South Delta. Typical story. Real estate. No money. Getting by on CPP, OAS and duct tape. “How can I persuade him to sell?” the son asked me. So I told him.

Yesterday came this note:

“Garth: An update for you. My father indeed sold his gated modular home in late June for the crazy price of $725,000!!  More money than he has ever seen.  The cash is safely invested in a balanced portfolio managed by discretionary management (Thank you).

“The news is this:   Not one unit has sold in the neighbourhood since he sold his and the latest asking price is $525,000.  A decrease of $200,000 or 27% in about four months. Prices here in the Okanagan still seem high and not much selling on our street.  I believe we are in for a significant decrease here too. Thank you again.”

Meanwhile, a current magazine story on sellers asking less than they paid a few months ago makes for interesting reading. For example, 15 Glynde in Burnaby is listed now for $50,000 less than the owners paid nine months ago (at $1.3 million), and 615 East 6th in North Van is back on the market for $46,000 less than it fetched in June (asking $1.6 mill). Add in realtor’s commission, and in both instances the sellers will get pooched.


615 East 6th, North Vancouver – on sale for $1.6 million.

Yesterday Teranet reported an annualized 7.5% reduction in YVR prices, which leaves the GTA as the only major market not in convulsion, contraction or conniptions. Are the six million inhabitants here protected by a special dome keeping out the laws of economics, or are they just wingy? Naturally, time will tell if Toronto escapes the forces washing over the nation. But I think we already know the answer.

So RBC raised mortgage rates on Tuesday. A lot, actually. The five-year rate is now 3.04%, with increases also to the two- and three-year terms. Plus people choosing a longer am than 25 years will pay even more. Of course, new buyers need to also pass the MST, which remains at a riveting 4.64%, plus if you are a commissioned salesguy or have a credit score lower than six times your IQ, or plan to ever vote for Kevin O’Leary, you fail.

This comes after the TD raised its prime mortgage rate a couple of weeks ago, and a month following Wild Bill Morneau’s sweeping mortgage changes which caused panic, then havoc, in the lending industry. And now we have an even greater threat.

Following the election of the Trumpster, there is (as reported yesterday) more than a 90% probability the Fed will goose its trendsetting rate by a quarter point on December 14th. It’s anticipated on Wall Street that two more (at least) hikes will occur in 2017. The bond market has seen yields soar in the past week, and US Treasuries are up dramatically (with prices down). American mortgage rates have swollen like a beached Republican over the past five days, with the popular 30-year mortgage crashing into the psychologically-critical 4% mark. It’s a threshold nobody seriously expected to see for about a year. As Bloomberg reported Tuesday, “The situation on the ground is panicked. Damage control.”

At the heart of the rate surge is a flood of money out of the bond market and into equities, on the expectation Trumpenomics will mean more spending, less tax, accelerated growth, inflation and protectionism. In Canada, bond yields have surged the most in about a year, just six weeks after hitting the lowest point in recorded history. Of course, the new president-elect’s America-first policies could end up hurting Canada, should NAFTA be shredded, effectively leaving our car manufacturing plants out to dry.

So, add it up, snowflakes. We may not be so special after all.

Interest rates are rising in the US, and will continue to roil bonds. Canadian yields have surged. Two banks have jacked mortgage costs. More to follow. The feds knocked up to 20% of buyers out of the market with their new rules. Trump threatens trade. The economy already blows. And some people in YVR are selling houses for less than they paid months ago.

By the way, a fresh survey out from Mackenzie Investments found 65% of people in their fifties think they’ll fail during retirement. Why? Like Paul’s old man (before he wised up) they’ve had a one-asset strategy, and now lack money.

Remember. Real estate soared because rates tumbled. Not because it became intrinsically more valuable. When prices retreat, debt remains. What a week.

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November 15th, 2016

Posted In: The Greater Fool

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