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January 6, 2017 | Expectant

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.

Vlad’s a realtor in Toronto. “I am a big fan of yours and read your blog daily (nothing else to do),” he says, sealing his fate, “and although I agree with your general approach to building a well-balanced and diversified portfolio of liquid assets, I don’t always agree with your commentary on the Toronto real estate market.

“Full disclosure: I live in Toronto, work in real estate and own property here. I am by no means a perma bull on the Toronto housing market. A year ago or so I sold my house because I didn’t think the housing market can go any higher – it did and my parents aren’t happy. Late last year I re-entered the market by purchasing an old bungalow as I felt the need to own land as a hedge to prices going up.”

So Vlad took time Friday to pen a long email about Toronto houses going up forever since lots of young immigrants move there annually, and the local economy doesn’t suck – as it does in Vancouver, Edmonton, Halifax, Montreal or one of those other small, regional cities full of boring locals. (This is how Toronto people think.)

“I agree with you on many fronts and I am well aware of the inverse relationship between mortgage rates and home prices, until recently we were in a 30 year bull market in debt. That said, there are offsetting fundamentals that should provide support to Toronto’s housing market.”

As I explained here yesterday, this may be true to an extent. Supply and demand are totally screwed up. Cheap money, voracious bankers, helicopter parents, financial illiteracy, risk-averse Millennials and migration have created the momma of housing demand. But homeowner greed and a growing inability to move have shrunk supply. That’s why prices are stupid. And cannot remain at current levels.

This brings us to interest rates. And markets. Along with Trump, and excess. What’s making people with financial assets happy these days is destined to make real estate bulls unhappy. Yup, it might actually be different this time, Vlad.

There’s no denying the US is hot. Like Mariah-Carey-in-a-glitter-jumpsuit-too-cranked-to-sing hot. Look at the jobs numbers – another 156,000 last month bringing the annual total to 2.16 million, coming atop 2.7 million new hires in 2015. (And Trump supporters bought into that junk about employment withering.) More important, people are making more money. Wages surged 2.9% year/year, compared with zilch in Canada. The best showing in seven years.

More people working making more money means more consumer spending, higher stock prices, inflationary pressures, a budding wage-price spiral and, yes Vlad, higher interest rates. That’s why stocks have been going up (the Dow ‘s a whisper from 20,000 since this all spells more economic growth), the US dollar rallied again and gold pooped. The recession that plagued the last eight years is over. Kaput. Looks like the Fed will pull the rate trigger again in 2017 twice or (increasingly likely) three times.

Meanwhile in Canuckistan, signs our economic torpor may be ending. Over 80,000 full-time jobs were added in December – an astonishing number, and the biggest job gush in five years. (But over 30,000 part-time positions were lost, so the next gain was about 53,000 – still a big win.) At the same time we’ve seen some good trade numbers, plus an escalating amount of inflation, thanks to a dollar stuck in the mid-seventy cent range. All this guarantees the Bank of Canada will not be dropping its key rate, and this blog is still betting its Stanfields the next rate move in this frosty, salt-deprived nation will be up.

After all, if the Fed increases two or three times in 2017, the premium over Canadian rates will be substantial, potentially kicking the stuffing out of our currency. Not good. Especially now that we know the T2 government lied during the election campaign and (a) the budget will not balance itself, (b) we won’t be solvent by the next election, (c) Canada will still be running deficits in 2050 and (d) the national debt will soar past $1 trillion. And just imagine the impact if the Trumpster does to the Canadian auto assembly business what he just did to Mexico’s.

In short, Vlad, this is one volatile world we’ve walked into. To assume the country’s last remaining bubbly real estate market will remain that way even as mortgage costs increase, national finances rot and Yanks change the rules is, well, realtor fantasy. Especially when we’ve just come through seven years of historic increases, as interest rates descended to record lows.

The rate bottom has passed. Sure, Toronto houses can cost more in the Spring because there’s an deep pool of greater fools. But to expect incomes and immigration will push the string tighter is naïve. Not so long ago nobody in Vancouver believed prices could fall. They are. Ditto Calgary. And Edmonton. Regina, Winnipeg and Saskatoon. Soon, add Victoria to the list.

As this pathetic blog has said, no crash, but no joy. There are years of change ahead. Enjoy the bung. You may be there awhile.

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January 6th, 2017

Posted In: The Greater Fool

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