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June 11, 2018 | Into the Fire

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.

Who needs Donald Trump sending T2 to a special place in knuckle-dragging, mouth-breathing, deplorable-heavy, concealed-weapon, MOGA, muscle-car, alt-right Hell? We’ve already found a few places that qualify nicely right here in erudite Canada. And after the weekend’s ridiculous G7 summit, beavers everywhere should be expecting more heat. Not the good kind.

Trade wars bring lower growth, fewer jobs and more inflation. There’s no good outcome. Protectionism and tariffs mean higher prices and interest rates. Now every major trading nation in the world has been tossed into this soup by a single man.

Simple advice on how to deal with an uncertain future? Don’t have all your eggs (supply managed or otherwise) in a single basket. Portfolios should be globally diversified and balanced, with safe assets as well as growth ones. Ensure you have 20% of it in US$-denominated assets. And don’t stuff your net worth in real estate. You won’t like what The War has in store housing.

In fact, hell may be here already.

Look at poor Victoria, for example. The Dipper taxes of Comrade Premier Horgan are starting to bite – foreigners are no longer welcome, Alberta dudes are gelded on sight, Upper Canadians are repelled at the ferry dock. The bevy of levies imposed on housing is taking an inevitable toll, especially when combined with stiffer mortgage rates and the stressful stress test.

Last year during June an average of 33.6 houses sold every day in the Snooty City. This year that’s dropped to 19.5 – a decline of 42%. And listings are starting to pile up – with actives currently sitting at 28% more than last time. It’s pretty clear where this is headed for the rest of the year. Funny what happens in a destination city when you tell people to go away and make living there more expensive. They go away.

Speaking of Hades, despair, loss and agony, let’s visit Notley’s Inferno.

Here’s Mary’s story, delivered on the weekend:

Hi Garth: I bought a half-duplex in the middle-upper class neighbourhood of West Dalhousie in Calgary two years ago for $355,000. I did my research, and this area was a reliable and safe purchase (I thought). The duplex has a fully self-contained suite upstairs and an illegal fully self-contained suite downstairs. However, the duplex turned into a massive money pit. It needed huge major repairs: replaced fence, balcony, plumbing, electrical, hot water tank, furnace etc etc, you get the idea. I had no more money and ended up with more than $40,000 in credit line debt. Then both units sat empty for six months. I decided to sell since they were empty anyway as they would show better, but the property value just keeps on dropping every month.

Now my $40,000 debt has soared to $100,000 debt and I’m tapped out. Should I keep dropping the price and sell it for way less than I paid? Or do I move in and find a lot of roommates? Or do I declare bankruptcy?

You’re pooched, Mary. Hope you didn’t buy a rental property based on the cultists at REIN – who were shamelessly pumping AB real estate right into the teeth of the current decline. You’ve obviously put all you money into a single, disastrous, money-losing, capital-eating asset in a city where the commercial core is hollowed out and even seventy-buck oil couldn’t bring companies back. Funny what happens when a government increases business taxes, turns surplus into deficit and has to nationalize a pipeline.

Anyway, kid, you gotta sell. The place will suck you dry. Take the hit.

Stoking the flames of housing Hades are higher rates. This week the Fed pulls the trigger again, with our guys set to fire in mid-July. It will be the sixth increase in little more than a year in the US and the fourth here. American rates are expected to increase once more (after this) in 2018, and the statement by central banker Jerome Powell on Wednesday will be intensely parsed, now that his boss has decided to flame the world.

On the topic of mortgage rates, you might recall this pathetic blog saying we’d all have to wait six months after the stress test came in to determine the damage. Well, here we are. It’s bad. “It increasingly looks like the new stress test is causing more than just a temporary dip in housing market activity in the greater Toronto and Vancouver areas,” says RBC. The stats are in. Sales down 22% in Toronto last month and 35% in Vancouver – and the assault continues. “The drag on house prices to persist through this year,” adds BMO. “We do expect the Bank of Canada to raise rates a couple more times (and) there will be a lingering impact of the tougher mortgage rules.”

Taxes, rates, regs and now The War. Here we go.

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June 11th, 2018

Posted In: The Greater Fool

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