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November 22, 2016 | The Sacrifice

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.


Once a year the pampered editors of a hoity magazine blanketing the wealthiest postal codes in Toronto invite me to witness a ritual sacrifice. Mine. It’s an annual ‘real estate roundtable’ held at a private club where employees wear white gloves and expressions to match. In exchange for sandwiches without crusts and soup served by the ounce, participants are expected to debate the future of property in God’s greatest creation, the GTA.

Well, not exactly a debate, to be honest. More of a goat-on-the–altar kinda thing. I’m the goat.

The editors amuse themselves by inviting pro-real estate bank economists, some of the billionaire developers who cruise the region in Bentleys, rock star realtors, a high-priced Bay Street lending exec or two, and me. The token denier. Trust me, it’s ugly. Garth guts everywhere.

So, eviscerated once too often, I stopped going. Now the editors have decided to dial it back by converting this into a text-based event (rather than hospital-based). So I just received the following message: “I hope all is well. We’re working on a story for our December issue, looking at the local real estate market and where it’s headed.  Looking for comments from financial and real estate experts, and hoping you can contribute by answering a few questions. Thank you.”

Here are the questions. Feel free to provide your own answers. Mine are below.

1. How will Trump victory impact Toronto housing market?

2. Interest rates now rising on mortgages – is this a blip or cause for genuine concern?

3. New land transfer tax on properties over 2 mil, coupled with recent changes; will it impact foreign buyers in Toronto?

4. Would you advise your kids or others to buy now or wait? And how long should someone wait if that’s the case?

First, Trump. The dude changes overall conditions about as much as he changes his mind. So, a lot. His election has sent all major North American stock markets skidding higher, spanked the bond market, rekindled expectations of inflation and likely ushered in years of protectionist, anti-free-trade, deglobalizing, America-first policies. This means we’ll probably get the bad stuff (high interest rates, less trade) without the good stuff (more jobs, higher incomes). If Toronto were a suburb of, say, Cleveland, things would be fine. And we’d lose Drake. Yay.

What Trump will do is hasten a correction in Canadian property values, and reward investors in financial assets, who have exposure to things like preferred shares and Canadian or US equities. That much should be evident from the first few post-election weeks. Plus, never forget that this big change is coming on the heels of the Wild Bill mortgage changes and MST, whose impact is not yet even being felt.

Second, rates. The bottom is in. How’s that not obvious? Yields in the bond market have bloated while prices plopped. Mortgage rates have risen at two major banks and others will follow. The Fed is being given 100% odds of an increase in December, with an 80% chance of one or two after that. It’s no blip. Nor is it ‘cause for genuine concern.’

The cost of money has been in the ditch so far and so long that real estate values have completely detached from economic fundamentals. Canadians have turned into a nation of one-asset investors, so many of whom are now speculators (over 50% of all GTA condos go to flippers and amateur landlords). Average families cannot afford average homes. Debt is off the chart. Kids think nothing of using 95% leverage to get a concrete box in the sky. Parents are borrowing billions against inflated houses to give to their spawn to invest in more houses. And the fancy editors think hiking rates to stop this destructive behaviour is a bad thing?

So will a land transfer tax surcharge for $2 million houses in Toronto (on top of the two that already exist) deter foreign buyers? Of course not. But, happily, there is no foreign buyer problem in Toronto. Or anywhere else now, apparently. That should tell you something.

Finally, tell kids to buy or wait? This depends on whether or not you like your children.

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November 22nd, 2016

Posted In: The Greater Fool

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