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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

May 24, 2018 | They’re Coming

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.

Trump punts Kim and tells the US military to “prepare.” Stocks sell off, bonds gain, yields fall as the Korean love-in fizzles. Trade war talk heats up again and even timid Canada gets into the act telling China it can’t buy construction giant Aecon. Washington gets all pissy saying it may impose a 25% tariff on maple-made cars. So much for NAFTA. Oil falls. So does 30 cm of snow in Newfoundland, a week before June starts. Climate change. Fishgate breaks out in Ottawa and in Ontario Tory leader Doug Ford is caught on tape breaking election laws, while the socialist hordes rise in the pre-election polls.

Most people are oblivious to this stuff, of course. They motor through life, want children and houses, hope for the best at work and figure they’re okay so long as they make more than they spend. It’s a shame, since so many will be surprised at the way risk can escalate. Never before have citizens been so over-extended in terms of debt, nor had so much net worth locked into a single asset.

Anyway, here are a few thoughts to frame your weekend.

Dippers on the bridge:
As mentioned this week, the unthinkable is drawing closer – Ontario voting in an NDP administration on June 7th. My freaking-out Con friends tell me the PC campaign is in tatters, with no cohesion, too little money and too much Ford. This is no longer an election about policy choices or economic vision, but simply a way for voters to punish the existing Liberal government by selecting the least-worst alternative. A carbon copy of what happened in BC – so if Ontarians want a glimpse into the future, look there. Carbon taxes. Higher income taxes. Stiffer business taxes. Speculation taxes. Luxury taxes. And inevitably, a wealth tax based on real estate.

The needy Million:
Apparently in the Toronto region alone there are one million Millennials still living with their parents – close to 20% of the entire GTA population. Never before in Canadian history have so many adults been so slow to begin independent living. They’re marrying later, having families later, staying in school longer and Hoovering up their parents’ retirement savings.

These are orange voters. A report this week estimates 700,000 of them will want to buy real estate, move to the suburbs, get minivans, shed their manbuns and, yes, grow up over the next decade. Of course, they can’t afford to. To buy the average house at the moment takes an income six times greater than the typical moister earns. Unless there’s a real estate crash, or incomes spiral higher, fuhgeddaboudit. So the answer for many of these kids (as was the case in BC) is an interventionist government using a tax hammer to beat the crap out of the market. Of course, the economy will go with it. So, prepare.

Say did you hear about the US couple (in New York) forced to go to court to evict their 30-year-old kid? I left home at 18. Laid rubber doing it, too.

Pray for the Drywallers:
It’s either a harbinger of what’s to come for the broader market, or the result of incompetence, but the new housing business is collapsing. In the massive GTA, homebuilders point the finger at government intervention, regulation, tariffs and levies that have restrict land development and jacked costs. Buyers have decided that prices are unjustified. And negative press about people who bought unbuilt houses a year ago suffering huge paper losses has been the kiss of death.

The number of new houses sold in April crashed 65% from the same month last year, with sales now running 70% below the 10-year average. You have to go back almost 25 years to find any period in which so few deals took place – and then the urban area was considerably smaller. As buyers walk away, detached house prices have fallen over the last 12 months, from $1.5 million to $1.2 million. More to come.

Hmm, so what are we to conclude?

Housing is a mess in most of the country. A patchwork of regulation, taxes, policies and emergency measures have so far done nothing to increase affordability. But more are coming. Voters demand it. Combined with rising US interest rates, a darkening trade picture and a big move left in Canadian politics, it’s not a great time to have the bulk of your net worth sitting visibly in one asset, on one street, in one city.

Look at the comments in this blog’s steerage section. So many Mills now equate wealth with real estate, and are happy to see “rentier” landlords hobbled, property taxes increased, second homes whacked and almost all housing investment labeled as corrupt. It’s easy to see a new, larger assault taking place on real estate equity, now that we’re running out of rich people to vacuum.

Remember the new mantra: get liquid, and live quietly among the masses.

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May 24th, 2018

Posted In: The Greater Fool

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