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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

February 23, 2018 | Enough

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.

Freshly-showered and fumigated after moderating yesterday’s comments section, let’s try this again.

To summarize: government isn’t the answer. Politicians helped fuel the housing bubble. Now they clumsily crush homeowners. Better that Mr. Market were left on his own to keel over from rising rates and an ocean of debt. Instead, elected amateurs in Ontario and (especially) BC have opted to tax everything that moves (Chinese dudes, cowboys, cottage owners, the doctor class) and hope for the best. With the economy now so dependent on real estate and the bulk of middle-class net worth sitting in it, the stakes are huge. As stated yesterday, the outcome could be Biblical. And not in the angelic way.

Anyway, it’s time for a counterpoint to all those whiny, lefty moisters who feel entitled to a house and demand that the government make it happen. So, here’s George.

I greatly enjoy your blog, but I’m hoping you can help me understand a trend that I can’t quite grasp.  On your blog, I’m seeing constant complaints such as:

“It’s downright tragic”
“…being shut out by a bunch of greedy a-holes is a bitter thing…”
“…people cannot afford kids…”
“Move out while you still have a chance, i.e. young and with a future…”

Your advice recently has been “move, or shut up,” an understandable response, but I genuinely do not understand why people seem so desperate. I’m 25, married, have 2 kids, and make $79k (single income). No debt. Our rent is $1800 a month for a cozy Markham townhouse that we love. We own a used minivan and are comfortably socking away $10,000 per year, minimum. My wife stays at home with the kids, so we only need one vehicle and don’t need to pay for daycare. My work commute is 10 minutes, and we live close to family and friends. Life, for us, is wonderful.

So why does everybody else seem so miserable? My theory is that people (especially my age) are making bad life choices and choosing to blame others for their misery, or am I simply living beyond my means? Thanks! – George”

Apparently normal people do read this pathetic blog. Who knew?

Well, here’s more evidence why the housing market in BC (and Ontario, Alberta and most major markets) is destined to roll over, even without the heavy and misguided hand of socialist MPPs. Stock markets have now embraced the reality of rising interest rates. Despite swelling bond yields, investors have turned their focus to romping and robust corporate profits, strong (US) job creation, an easing of world nuclear tensions, business tax cuts and a hefty rise in global growth.

So what? So the Fed will increase its key rate three times this year, adding to the four hikes we got in the last year. The Bank of Canada absolutely will follow suit, with the usual lag. Count on three more increases here in the next 12 months, taking the bank prime to 4.25%. The benchmark Bank of Canada five-year mortgage will sit at just below 6% then, with mortgage borrowers having to qualify at that level or higher.

That’s a big deal. Huge. On its own, more than enough to turn a busy real estate market into a stagnant one. Add in record levels of household debt, half of it facing refinancing in the coming months – with the stress test in place – and the market goes into reverse. The hallowed soft landing. Now add in a 15% or 20% go-home tax in BC and Ontario, that massive ‘speculation’ tax creaming off $200 million from existing homeowners, the empty-houses tax, the luxury tax, the universal rent controls, the enhanced property tax and maybe (if Van’s crazy mayor gets his way) a flipping tax, and we’re begging for a crash.

As the loopy comments section demonstrated yesterday, many people crave this. They think real estate – which accounts for more of Canada’s economy than oil & gas and a full quarter of BC’s GDP – can be leveled and everything will stay the same. Except they can buy a house from some decimated rich guy for 50% off. Torches and pitchforks swarming over the castle moat.

You must feel pity for those who support the NDP’s tax-tax budget, believing the politically-induced houseageddon will let them move up to a bigger, nicer place. Don’t they understand their own home would be sliced in value, putting them in the same spot? If the economy sputters, surely jobs will be shed, wages reduced, employers impacted and families hit. And if this happens, as mentioned, when central banks are tightening monetary policy it exacerbates all.

Well, maybe this is drama queen talk. Laissez-faire, right-wing, free enterprise, rugged individual, capitalist fearmongering. Perhaps Comrade Horgan and the Dippers are economic geniuses who can accomplish what no prior administration has – make people wealthier by taxing them poorer. Let’s see.

This much is clear, though. Expectations are epic. People want gain without consequences. Loaves and fishes.

If BC were a stock, I’d short it.

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February 23rd, 2018

Posted In: The Greater Fool

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