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August 9, 2017 | Born this Way

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.

Poor moisters. Coming into life’s rutting season when real estate has never cost more and emergency interest rates are collapsing. Worse, smug Boomers own all the houses and aren’t selling. So why can’t these wrinklies just take their Bowie, Stones and Prince CDs and waddle off the end of a pier? Isn’t it time the Huggies people replaced the Thirsty Undies crowd?

Seriously, there’s a housing standoff happening. It’s unlikely such a situation has existed in the past since the biggest-ever generation (born 1946-64) has just been surpassed by an even-bigger one (born 1981-1997). Homeownership levels between the two groups is wildly divergent. Not even close.

The latest census data (just released) shows 71% of Boomers aged 65 to 74 own real estate while just 27% live in multi-family structures like apartments or seniors residences. (The other 2% may be dead but have yet to realize it.) And while we don’t seem to have data on what portion of all Boomers are homeowners (aged 53 to 71), it’s likely not far off US numbers. Americans 55 and older currently own 53% of all owner-occupied houses – which is up bigly from 43% a decade ago.

Here’s the shocker. The Mills (to age 35) currently hold just 11% of houses – only half of what the Boomers owned when they were the same age. This probably explains why a certain pathetic blog is overrun some days by a whiny pack of moisters moaning about inequity.

It also explains why a third of all people between the ages of 20 and 34 still live with their parents (says StatsCan), and why this has been increasing steadily for the past 16 years. The thing-in-the-basement situation is most acute, as you might surmise, where houses cost the most. For example, in the GTA a stunning 50% of Millennials under the age of 34 hang with their parents.

Says National Bank economist Krishen Rangasamy: “So, depending on how you feel about living with your boomerang kids, you may want to thank (or curse) the Bank of Canada for the extended period of low interest rates which has allowed average home prices to more than double over the last 12 years, thereby pricing many young adults out of the housing market.”

 

Is this going to change any time soon?

The Altus Group, a real estate research outfit located in TO, says no. Ain’t gonna happen for a long time – until the Boomers hit their eighties. For example, today about six in ten of all the senior wrinklies 75 to 84 still live in their houses, and but a third are in apartments. Given that the bulk of the Boomers are in their early 60s, it suggests Millennials could be pushing 50 by the time the housing market finally breaks down based on demographics.

No wonder the kids are pissed. To make it worse, the ancient ones are rapaciously greedy. Real estate’s ascent has given them an easy path to net worth, and those who decide to bail are expecting top dollar. It’s made for an historical anomaly – the massive transfer of wealth from children to parents as the geezers cash out and the kids shoulder fat mortgage debt.

Governments, naturally, have made things worse. Not only were interest rates crashed, then held in place for so long that a housing bubble formed, but seniors have been showered with gifts encouraging them to stay in their homes. A great example is the way Boomers in BC can essentially avoid paying property tax. The nearly-dead at 65 may be sitting on $1.6 million in real estate and the province still hands over up to $1,045 in pogey to help keep the lights on. Amazing. No wonder the sprouts hate us.

The good news, sort of, is that all will soon change, tilting in the opposite direction. The threats to Canadian residential real estate are mounting rapidly, as this site has been chronicling. Rising interest rates and new mortgage hurdles are just the latest obstacles. Sentiment has morphed dramatically. Mindless property appreciation has turned into the rapid erasure of equity. Suddenly a house doesn’t seem like the secure bastion of net worth it did six months ago. Legions of home-rich and asset-poor Boomers will have little choice but to consider cashing in, turning houses into needed cash flow. And that would be incredibly wise on their part. Waiting means losing.

Meanwhile, kids, don’t buy. The correction has just begun. The last thing you will want in five years is a 500-foot condo. And neither will anyone else.

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August 9th, 2017

Posted In: The Greater Fool

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