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September 29, 2017 | Whimsy

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.

While poor Bill Morneau was being hammered at his Oakville town hall meeting Friday morning, there was bad news on Bay Street. Not about taxes – which the finance minister wants to jack on small business owners – but for housing, which is sacred.

Here’s what we know going into the last weekend of September, which was supposed to go all Lazarus, and jolt back from the dead. It didn’t.

Prices are stable, but sales have not revived. In the GTA, for example, volumes were down about 40% year/year. The story is similar in both Toronto and Vancouver – condos and entry-level houses are selling fine, detacheds and McMansions are unloved and sinking fast. In Van’s tony Westside hood, for example, the number of deals this month is expected to crash by half. First-timers are still spending. The move-up market’s a disaster.

This, say some experts worth listening to, will get worse. September might turn out to be the high point until next April, or maybe for a year. Or longer. Because of the universal mortgage stress test adding 2% on top of current rates, says RateSpy guy Rob McLister, people will simply qualify to borrow less than sellers demand. “Toronto is especially vulnerable to Ottawa’s next round of tightening,” he told that awful network, BNN. “If you’re a lender active in the Greater Toronto Area, the worst may be yet to come.”

According to RBC, Van and TO are already pooched. Housing affordability is at the worst level since Brian Mulroney was winning an election on free trade with the US (my, how things have changed). The bank says the ability of average people to buy average houses in the GTA plunged in the last few months despite the market cooling – and the coming interest rates run-up could erase the effect of future price declines.

It now takes 75.4% of a family’s pre-tax earnings (or just over 100% of what’s actually brought home) to buy and carry a house, even after a massive 25% down payment. That rate soared almost 13% in the second quarter of 2017, while it fell a little in Vancouver (to 81% of income). Across Canada, the bank found families must devote 46.7% of gross income – a deterioration to levels not seen since 1990, when a five-year mortgage cost 12.25%. Ouch.

As bad as that is, it gets worse. RBC expects four more Bank of Canada increases in the next 15 months, plumping mortgages a full 1%. Add in the stress test for a 3% bump – almost doubling the current five-year rate of just over 3%. That single-point mortgage increase will worsen affordability by 3.5% across the country and double that in YVR, says the bank. “This would occur at a time when housing affordability is already stretched in some of Canada’s largest markets.”

Hmm. Meanwhile the Trumpster says he’ll announce the next Fed chair in a couple of weeks, with a notable hawk now heading up the short list. Given that planned American tax cuts will boost economic growth and inflation, it’s a fair bet US interest rates will be dragging ours even higher over the next couple of years.

Does this mean real estate will crash and burn?

Nah, unlikely. But it does suggest prices will flatline, then melt, as Canadians – already carrying a record debt load – are able to borrow less. When money resembled this blog (dirt cheap and available), house values soared. So when credit contracts, expect the opposite. There’ll be further tightening through a stress test for all borrowers. And you can count on central banks normalizing rates at levels which will make current ones look like whimsy.

Buying in 2017, kids, might turn out to be just as good a choice as that butterfly neck tat.

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Back to Bill. Friday’s event was brutal, even though Finance guys tried to control things tightly, with a curt one-hour format that left many angry people standing in front of dead mics. Still, it was an overall negative for the finance minister whose slip-shod tax reform plans have turned doctors, farmers, vets, contractors, accountants, hairdressers and indy IT guys into political vigilantes. The Oakville meeting was the final, ugly event in a Lilliputian 75-day consult period.

If comments on this blog are any indication, T2 and his crew have been successful in starting a class war. By calling small business people, farm families and incorporated pros tax cheats and loopholers, Ottawa’s vilified millions who have violated no laws. The government has driven an unhealthy wedge between the salaried and the self-employed with the same inflammatory language and devices Trump used to brilliantly divide and conquer. Who would have thought?

Well, here’s an example. Just received this suggestion from a fan:

What I’d like to know is how many millions Garth is worth as he sits on his throne casting stones at the new tax laws that aim to make things more fair. Elitist if I ever saw one. This blog is so out of touch with public opinion. How about call this blog:

I like it.

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September 29th, 2017

Posted In: The Greater Fool

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