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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

December 19, 2017 | The Obvious

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.

Since I never gloat about being right (it would make me even less tolerable) let’s focus on the lessons in the latest dump of numbers out of Ottawa.

In case you missed it, Chinese dudes are history. They obviously irritate a lot of people who come here to relieve themselves, but they’re not responsible for bloating house prices in YVR and the GTA by 150% in a decade. We did that. Now the government backs me up. Non-beavers own just 3.4% of the properties in Toronto and 4.8% in Van. Yawn. That equals 3% of the value of all GTA houses and 5.1% of those in the Lower Mainland. Foreigner buyers like condos best (they’re easy to rent), but overall less than 1% of the condo stock in our 17 major cities is theirs.

This is consistent with every other attempt to measure the impact of offshorers. However it will be rejected by those whose prejudice, narrow world view, victim mentality and bigotry make them keen to blame Asians. They’ll boogle you with stories of money laundering, casinos, family cash, numbered companies, fraud and tax evasion (as well as kids in Lambos), but stats are stats. We’re not being overrun. The housing market is 95%-dominated by locals. There’s nobody to blame for stupid prices but folks like your BIL who turned housing into an investment asset financed it with epic levels of debt. This will not end well. The report this week will accelerate that.

Lessons:

Never trust politicians with your house.

There was no solid evidence for the BC or Ontario governments to impose a tax on non-local buyers. Those moves came as an uninformed, kneejerk response by people trying to save their political skins. Instead of being principled, they bowed to the lowest common denominator of public opinion. The 15% tax in Toronto and Vancouver was obviously race-based and we should all be ashamed of it. Of course, it failed. So did we.

Blame cheap credit and speculation. Big change coming.

House prices spiked when the Bank of Canada dropped rates and banks began a race to the bottom with mortgage costs. Flippers, speculators and amateur landlords moved in. When mortgages hit 2% in the spring of 2017, houses prices were rising 30% a year. Canadians did not use cheap money to retire debt, but merely snorfled more of it. The facts are irrefutable. Now we owe more than can be repaid in a lifetime. With money costs being normalized and new lending regs in place soon, it all changes.

News flash. Everyone does NOT want to move here.

House sales and prices dipped in Toronto and Van after the Chinese Dudes taxes were imposed, not because foreigners ran away but because the locals thought they would. So they stopped buying. The market instantly reacted. All the proof anyone needed of what moves it.

The news this week is further evidence there’s nothing backstopping the residential housing scene in Canada. Immigration hasn’t spiked, remaining consistent with decades past. There is no torrent of money from Beijing or Guangzhou. Interest rates in North America are inexorably rising. The economy has been good, but is cooling now. US tax reform may lure investment bucks away and our trade deals are under attack. Why do so many people in this delusional country think everyone in the world wants to move to Kitsilano? Or Etobicoke? To Halifax? Or Calgary?

They don’t. Nine of ten real estate sales are between consenting Canadians – every one adding new debt. Those who bought in fear of being priced out by a Chinese guy, in a bidding war with eight other locals, have a long road ahead of them now.

Don’t blame the blog.

This pathetic site is not anti-real estate. Hey, I own property. But over the past nine years of tedious, repetitive, nauseating, mind-numbing, tortuous posts, the message has been of balance. Never put all your eggs in one asset at one address on one street, especially when buying takes every dollar and thrusts you into debt. Moisters desperate to get a condo with extreme leverage that ties them down and costs twice as much a month as rent, are the brain-washed spawn of the Bank of Mom.

This is an asset class that’s been loved to death. Expensive to buy, a burden to own and carry, oft illiquid, it’s no place to grow net worth any more. If you want a house, can afford it without sacrificing balance and don’t mind a loss, go ahead. Get one. Just don’t blame anyone else for paying too much. Not cool. And now, not true.

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December 19th, 2017

Posted In: The Greater Fool

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