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December 18, 2016 | Unhinged

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.


Kelly needs a hug. “I have read your blog almost every day since 2010,” he writes from North Van, where the houses go for two mill.

“I am 38 and my wife is 41 and we have two boys, 7 and 8 years old. I earn $125,000 per year, and we have around $180k in RRSP and TFSA accounts and $100k savings (in a brain dead high interest savings account because I keep hoping house prices will drop and I will use it toward a down payment). My wife is a stay at home mom but thinking about going back to work.

“We currently rent a 60 year old house for $3650 per month and sublet the basement suite for $800 per month. I don’t have a big issue with renting but this is far from being the house that I want to live in long term and if you spend any time on Craigslist you will see that there aren’t many decent options in North Vancouver or anywhere near Vancouver city centre in our price range for a family of 4.

“The way I see it right now we either need to move out of Vancouver toward the Fraser Valley or we will be doomed to renting what I consider substandard housing for the foreseeable future. Did Christy Clark just kill my chances at seeing Vancouver house prices go down? Should I give up now and move away from Vancouver?”

Damn fine question. YVR’s market has been gently rolling over since early summer, and lately peppered with price reductions (check out this site) that helped bring down the benchmark single-family marker by $193,000 last month. No wonder. Prices are insane, thanks to speculators and idiot buyers. The Chinese Dudes tax chased away foreign purchasers. Mortgage rates are rising. The new Moister Street Test has carved off 20% of buyers. And average incomes are mired in a mucky economy. Why wouldn’t prices plop?

Even Royal LePage czar Phil Soper gets it. Last week, after calling the TA and Van market unhealthy, he explained: “Some may find my statement surprising, because they confuse high price appreciation with a healthy market. When incomes are rising at three per cent and house prices at 20 per cent, that’s not healthy. That’s unbalanced.”

True words. Everyone’s expecting price retreats in 2017, with more listings and – finally – an uptick in affordability, even as the costs of five-year mortgages swell. This is why BC Premier Christy Clark is being viewed by most observers as Canada’s most unhinged politician. Her government’s plan to start giving moisters lacking the cash to buy a house up to $37,500 in down payment money (free for five years) is a recipe for reversing the healthy wilt.

Says UBC economist and house-pumper Tsur Somerville: “It’s a gift that may end up fueling a Canadian debt binge and padding the pockets of sellers instead.”

Says SFU director Andy Yan: “What does this C$37,000 enticement do but encourage people to take on more debt?”

Says CMHC boss Evan Siddall: “Ample support exists already for first-time homebuyers. Too much encouragement to buy homes exposes vulnerable people to excessive financial risk, pushes prices higher where acute supply inelasticity exists – like here in Vancouver – and jeopardizes our economic prospects.”

Says GreaterFool: “Give buyers $37,500 in free house money and they’ll spend $37,500 more than they would have. Sellers get an extra $37,500. Prices go up $37,500. What’s Christy smoking?”

Meanwhile in Ontario a new survey by the provincial real estate industry found Wild Bill Morneau’s mortgage crunch (now two months old) is having a serious impact. Forty-five per cent for first-timers state they’ll delay buying until they’ve saved more. A fifth have postponed it completely. Over a third are now shopping for a cheaper house. All this is exactly what the rules were intended to achieve – tapping the brakes, landing the housing gasbag without an epic crash.

So, Kelly, there you go. The unintended consequence of a woman trying to get re-elected by catering to house lust may keep your family renting. But, seriously, is that such a bad thing? Buying a $2 million house in your hood would clean out your savings, and yield a monthly nut of almost $9,000 (mortgage, taxes and insurance only). Besides, your household income would have to more than double just to qualify for a monster home loan like that.

So, yeah, the premier is a self-serving and unhelpful loon. But you’re equally unrealistic. With a family to support, the most irresponsible thing you could do would be to roll the dice and buy real estate, given your financial situation. Want a house? Then move to Hope. Or get the hundred grand working for you and out of a 1% savings account.

Given what we’ve allowed to happen, it will be a long time before average people in Vancouver can afford average houses. If ever. So stop thinking it matters.

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December 18th, 2016

Posted In: The Greater Fool

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