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April 26, 2019 | What it Does

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.

Toronto condo sales have dropped, listings have increased but prices haven’t declined. Just the opposite. The average high-rise concrete box now costs about $570,000 and comes with condo fees, property taxes, utility and insurance overhead, no dirt and little privacy.

At the same time RBC is telling us Mills have flooded into Toronto, Montreal and Vancouver – almost a hundred thousand of the bearded, tattooed creatures in just one year. In fact, for every young person leaving the Big Smokes, seven to 12 new ones have swept in from elsewhere in the country or the world.

So why would sales be down for the only affordable type of real estate left?

Price, of course. The stress test reduced credit, kicked a lot of buyers out of the market, made the purchase of a detached house an impossibility and increased demand for condo units. So, fewer buyers means fewer sales but those in the market are competing. Until inventory surges much higher, values will likely hold.

There’s little question that a whole generation of moister-buyers in places like the GTA and YVR are being slaughtered by price. Zoocasa said this week only the top 10% of income-earners can afford to buy a house there. In Vancouver 97.5% of people are too poor. And yet folks still strive to do so, taking on Herculean debt loads and giving scant thought to the consequences. Society continues to be victimized by our own cultural bias against the most logical, rational, prudent path for young couples, which is to rent.

Now, for more insight into the Millennial angst consuming the country’s largest cohort, here’s Lindy:

I just started reading your blog, and my most important question is – where do you go to start getting a better understanding of finances if you have no background in it, and no people in your network who understand it?

I’m 34 and my Husband is 36. We live in Vancouver, and all of our family and friends are located here as well so we feel strongly about staying here. About two years we inherited some money from a death in the family. We thought we wanted to buy a place and so we put our inheritance of about $250,000 in a term deposit so we could access it easily if we needed to. As housing prices are starting to go down in Van we’ve been waiting. In the meantime we live with my parents where we don’t pay rent. This has allowed for me to go back to school and for us to do two rounds of in vitro fertilization. We hope to have children in the next year or two and I have about two years of school left. This means we’ll likely rely on just my husband’s income for years – about $80,000 after bonus and we both don’t expect to have access to pension plans in our future careers. We have $35,000 in our RRSPs and $5000 in a TFSA both of which are invested in index funds.

We want to move out from my parent’s house so that my brother can move in but if we rent it would be about $2000-$2500 a month. If we buy, we can get a 2 bedroom condo in the (closer) burbs with about a $300-350,000 mortgage plus our savings. Do you think buying is the right path to take given that we don’t expect pensions (beyond CPP and OAS)? Are we totally screwing up? We don’t have financial knowledge and we also don’t know who to consult, do you have advice here? Where do people go when they don’t know anything?

Lindy & squeeze are considering buying a condo outside YVR for about $600,000, consuming all their savings plus inheritance and increasing debt from zero to $350,000. Why would they do such a thing after being gifted more money than they can save in an entire adulthood? Why, when they’re engineering a family, expect no pensions and face living on a meagre income consumed by mortgage payments, strata fees and Huggies?

The condo cost will be $1,700 for the mortgage, at least $600 for fees and taxes plus the loss of $250,000 which could be invested. Far more, in other words, than renting the same unit. Meanwhile the inheritance, if invested wisely should sit around $2 million at age 65, throwing off enough income for them to retire comfortably.

This is what real estate does. It addles the brain. Muddles decisions. Leads stray. How can these moisters seriously consider squandering a great gift and a head start on something they can have without debt and for less expense? Why would they sacrifice and risk so much to own an apartment their family will likely outgrow? If children materialize, should they not come first? And why are 35-year-olds living with their parents? Did real estate prices do that? Or our shifting cultural norms?

But Lindy’s main question was where to gain financial knowledge when those about you have none?

Well, you’re here. It’s a start.

Some advice: move out. Rent. Live within your means. Save. Get some help, invest the money and forget about it. Forever. Ignore anyone telling you to buy a condo. Stay out of debt. And did I mention moving out? You don’t want family pressure. Or strata fees. You need freedom, independence and space. Soon, trust me, you’ll see through a new lens.

And, for the love of God, ignore the comment section.

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April 26th, 2019

Posted In: The Greater Fool

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