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July 14, 2017 | Home

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.


Five summers ago, when dearly departed eflin deity F was trying to tame the housing market and Alberta real estate was on fire, poor Ken wrote to this pathetic blog.

“We had to move in 2010 due to a job loss and sell the house we left behind in our home city.  We made enough on the sale for a small down payment whenever we decided to buy again. I found a job back home in Lethbridge last month and decided to move back. My wife told me that she never wants to move again and if I want to stay married we better buy a house (isn’t love grand?) I am in my mid 40’s and just got my mortgage approval on Wednesday from the bank. – the day before F dropped the latest housing bomb.  I will put 5% down with a 30 year amortization.  So we are looking at me carrying a mortgage well into my 60’s.

“I have 100K in RRSP so I have a retirement nest egg started.  Tell me, did I just hang myself with debt on an asset that isn’t going anywhere but down.  Most of what you hear is about Toronto and Vancouver, what about us that live in areas of 100,000 people who worry that we’re screwed?”

Did Ken buy (under the pressure of love) in 2012? If so, has he scored big equity gains in the last five years, milking that 95% leverage? What’s been the fate of this middle-class family?

Well, we have an update. It’s may not be what you expected. But first, this:

While journalists, academics, politicians and real estate CEOs debate whether the market is experiencing a hiccup or a heart attack, conditions continue to deteriorate at a frenetic clip. Here’s some current data from Ugly.

Oakville: Detached home sales down 46%, listings up 96%. Prices down 7-16% month/month. One more flat month and year/year prices go negative.

Markham: Detached sales down 66%, listings up 116%. A rapid decline in sales/increase in supply resulted in m/m price declines of approximately 10-11%.

Brampton: Home sales down 41%, while listings have exploded 184%. Month-over-month price declines of approximately 7-8%.

Mississauga: Detached home sales down 42%, listings up 102%. Annual price growth has fallen back to early 2016 levels (a price decline of 7-8%).

City of Toronto: Detached sales down 43%, listings up 91% year/year. Prices have declined 3-8%. Condo sales down 22%, listings off 27%.  Prices are down approximately 2% month/month in June.

Meanwhile, look what happened with 14 Milner Gate, in Vaughan, home of acres of particleboard McMansions. It was listed on March 31st for $1,288,000 – which seems like a ton of money for a nondescript suburban house miles from hip people – and was snapped up in a bidding war just days later – on April 9th. The price: $1,850,000. Here it is:



Well, we know what happened next. After Easter the Ontario government brought in its anti-bubble package and, as this blog had been pointing out for a few weeks, the market was already rolling over from price fatigue. Not exactly the smartest time in history to be paying a $600,000 premium for a house that looks like a garage with a tumour.

“This was supposed to close in mid-June,” says realtor Uri Kogan. “It was the most expensive house under 3,000 square feet in the area that ever sold. Didn’t close. Yesterday the FOR SALE sign was up. Someone is going to lose big, because three doors down a similar home (a bit smaller) just sold for $1.215 million.”

The lesson here? The inevitable is occurring. The real estate market in Canada, despite whichever way it lurches, weaves, bobs, spurts or staggers over the next few months, is fraught with risk. It will bring a lot of people down. And the extreme leverage which has been at the heart of this market is a proxy for the country.

In the last decade household debt has grown by 85%, right along with house prices. Cheap money tricked millions into shouldering billions. Contrary to what the property bulls tell you in the deplorable comment section to follow, this does not always work out well.

Which brings us back to Ken.

Five years ago, as Lethbridge prices roared ahead 19%, this was my advice:

You have kids, which makes renting difficult. You have a nesting wife, which makes it impossible. You can buy a Harley and head south, or suck it up and buy your family a home. My point is this: you made a decision to get married, have four children and buy real estate. That explains why, in you mid-forties, you have only $100,000 saved and a measly 5% down payment. It’s all about choices, Ken. You made ‘em. You live with ‘em.

Will the house you just bought be worth less in a year? Probably. As long as your wife knows that, and can live with a complete erasing of your equity, then so be it.

And here is what happened, in Ken’s own words…

I thought you may be interested to know how things turned out. We bought a house large enough for 2 adults and 4 kids to live comfortably.  The plan was to buy one close to the university here in Lethbridge so the oldest had an easy commute in a year when she finished high school.  It was a larger “dated” home in a mature community.  So, somewhat affordable.

Life was good for a year then things started to go sideways.  The oldest daughter found it more appealing after finishing high school to rent a crappy little basement suite with her boyfriend than live rent free and follow the house rules.

To make a long story short.  The bond my wife and I had was not strong enough to endure everything that life can throw at you. She moved out in October 2014 and I stayed in the house until it sold.

It sold in April of 2015 for exactly what we paid for it.  After putting in about $10,000 in renovations (new carpets and new bathroom), and realtor fees, we got a cheque for 7,000. Since October of 2014 I have accumulated about 40,000 in debt. I remember you saying that divorces are expensive.”

Like this guy, many are about to discover real estate is a costly, messy, disappointing, illiquid and dodgy investment. All bubbles burst. Prices revert to the mean. Debts are inescapable. And nobody needs to own a house to have a home.

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July 14th, 2017

Posted In: The Greater Fool

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