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November 17, 2017 | The Choice

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.

Yesterday we mocked Mills here on this righteous blog. Today we commiserate. We feel your pain, moisters. You get all schooled up and brimming with expectations, then what happens? Yep. Reality. It blows.

Never before have so many people between 20 and 35 lived with their parents at home. Estimates vary, but in Canada the consensus is between 30% and 42%. The impact on parental finances is huge, but so must be the psychological toll of being an adult and yet a child. When measured against their parents, who generally fled the nest in their early 20s, this is a generation in which financial and personal maturity is being pushed back as never before.


A Credit Suisse report says Millennials face a perfect storm preventing them from independence. That includes crappy entry-level jobs with substandard wages, inflated real estate costs, careers without pensions and few benefits, withering, decaying Boomers who hold the good positions and refuse to retire, soaring rents (because of soaring housing) and an insane conservativism born of suspicion, mistrust and cynicism (and too much education). Wow. End of days stuff. If you think the next two decades of your life will be ashes, why leave Mom’s basement?

“With the baby boomers occupying most of the top jobs and much of the housing, millennials are doing less well than their parents at the same age, especially in relation to income, home ownership and other dimensions of wellbeing,” says the bank. A big issue is that people in the twenties and thirties are entering family-formation years and a giant, prolonged rutting season in which nesting, birthing and parenting are preoccupations. But because we’re now in a gig economy with stupid house prices, rising rates, tougher borrowing rules and endless volatility, it all ends in stress.

Of course the Mills are not alone when it comes to be fritzed. Another survey (they’re endless) says 70% of people stress over money to the extent four in ten can’t sleep. Half of all marriages now end, with finances cited as the reason.

At the root of much of this is, of course, real estate. Canadians obsess about it, spend huge sums they don’t have to get it, then face decades of payments for mortgages, property tax, insurance, maintenance and utilities. If they end up making a capital gain, great. But then most just trade up to a bigger house, subsume all their profit within equity, and double down on a new mortgage. Meanwhile the poor moisters are stuck on the sidelines after an historic housing romp, unable to buy much other than a kennel-sized concrete box for $800 a foot.

So here’s the worse news, to accompany the bad news above. The housing market is destined to be negatively impacted by higher interest rates and tighter lending rules plus overbuilding. The areas whacked the most will be exactly where the Mills migrate – urban 416 and YVR. The kind of real estate most devastated will be just what the kids are now flocking to (because it’s what they can afford) – condos. It’s entirely anyone buying such a place now with a 20% down payment will lose all equity within the next two years. Your mortgage will equal the entire worth of the property, or more. The loss will be devastating if you deployed all your savings.

Meanwhile rents are high and vacancy rates low in Toronto, and especially Vancouver. Both leasing and owning are massively more expensive than they were for your parents and, of course, all the big money’s already been made in real estate. If you do buy a house from a Boomer, you’ll be funding his retirement and participating in the grandest transfer of wealth ever from one generation to the previous one.

So, be smart about it.

Don’t buy. It’s a wealth trap. An ‘affordable’ urban condo means forever-high monthly fees, no outside space, a limited universe of potential buyers, shoddy finishing and weird people living above and below you. You cannot control the building, the living environment nor shield yourself from special assessments when the parking garage needs a repair or the windows fog and must be replaced. The value of your unit is tied to that of every similar one, and with each new high-rise built, existing condo buildings become a little less desirable. When you can live in the same space as a renter for half the cost and none of the risk, why wouldn’t you?

Better still, leave town. Seriously.

Take that $400,000 and see what it buys in Halifax, Quebec City, London, Lloydminster or even Montreal and Ottawa. Sure, finding work may be a little more challenging, but apparently people have actual jobs in those cities. They don’t spent 110% of their incomes on accommodation, which means they can stuff their TFSAs, or even afford to have children. They get houses with yards, driveways, backyards and minivans. They pay off their debts.

The premium for living now in 416 or 604 is extreme, unrelenting, draining and destructive. It’s about to get worse. If you try, you may never recover. Get out and get a life. Or, stay with Mom. If that’s a tough choice, you’re already pooched.

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November 17th, 2017

Posted In: The Greater Fool

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