- the source for market opinions


July 30, 2018 | Going, going…

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.

Mr. Market giveth. He taketh away.

And so we have the story of star-cross’d lovers from the GTA’s exotic exburbs who bought a house from plans in a faraway land (Barrie), then got pooched. File it with the sobs-and-shudders tale of young buyers of Mattamy Homes in the east end of the Big Smoke who came to the same shocking revelation: prices go down! Who knew?

A mess of moisters inflicted with FOMO who rushed into a steamy market in 2017 to buy homes before they were priced out forever are now running to the media because life is, like, so unfair. The latest, Abid and Sapna, paid $639,000 for an unbuilt glue-and-sawdust McMansion north of the big city that is now worth $539,000. Next month it might be less. Meanwhile interest rates have increased, ruining their finances.

And then, oh, that stress test. A&S are moaning to the media this has forced them into the clutches of an ‘alternative’ lender. Yes, they can escape that nasty test by doing so, but the price is a higher mortgage rate.

“I feel badly for people who bought at the peak of the market,” says the local real estate board boss, “but they wouldn’t be complaining if it was up $ 100,000. It’s put them in a tough position.”

Well, a contract is a contract and buyers of pre-construction real estate must understand they’re actually dealing in financial futures. They put some money down now for an asset that won’t be delivered for a year or two and whose value will be determined by market conditions on the day of delivery. Precon buyers did great during the bubble years when prices unexpectedly jacked higher. Nobody complained. Now we’re on the other side of the mountain and many people are being crushed. So they become victims. Not of Mr. Market, but of their own gamble.

The nation’s mortgage brokers raised eyebrows last week with a report slamming the stress test (designed to keep unqualified buyers from buying). At least 100,000 first-timers have been punted from the market, it said, and we are in danger of creating a permanent class of renters. Like that was a big negative. (Nobody has apparently gone to Europe.)

Meanwhile a Conservative MP from Alberta (are there any other kind?) tried to talk the House of Commons Finance Committee, on which he sits, into opening an investigation into the impact of the stress test. But no go. The Libs voted in a block against the motion. No discussion.

All this angst is happening against an interesting backdrop. On Friday came news of a 4% spurt in US economic growth – the best in four years. Unemployment in that country has dropped to 4% or lower, which economists call full employment. Corporate profits are on a tear in both Canada and the States. Stock markets are rolling near record high levels. The Inflation President promises more growth, protectionism, higher living costs and a wage-price escalation. It’s all playing out at this very moment.

Thus, higher interest rates are a certainty. If you think the stress test sucks now, wait. If you believe realtor glop that the market’s ‘stabilizing’ or even ‘recovering,’ I have some Bitcoin futures to sell you. Monthly fluctuations are to be expected, but as the year progresses inventory levels will rise, mortgage rates will increase one or two more times, sales volumes will stay anemic and politicians will find new ways to destroy equity. After a decade of enduring scorn, renters will finally be able to go home for Sunday dinner again.

If you want to buy real estate, wait. By the way, Abid and Sapna foolishly ignored a primary GreaterFool rule. You know which one.

Did you catch yesterday’s blog post on POAs and family turmoil? Paul did. I’d like to share his story. He’s asking for advice, so feel free to dispense it. The hit man sounds like a reasonable option.

Advice: father and mother both in 80’s father needs to be picked up and put in bed then his wheel chair in morning. Has people come in to help with other issues. Sister and her husband seen opportunity so sister moved into house, nice place on acreage, parents are ok financially. Sister demanded payment, which is correct. She gets the auto for all her usage, gas, repairs, nice place to live all she can eat and drink (2 bottles of wine per day), extra cash (like $1,500 to put mutt down) whenever her spend thrift husband living hour away can’t keep up with his $90,000 salary as drug company sales manager. I thought pops should pay her as well say $1,500 per month.

Just foun

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July 30th, 2018

Posted In: The Greater Fool

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