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May 10, 2019 | The Big Gig

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.

Hmm. Just when you thought it was safe to take a variable mortgage…

So much for all that recession talk or the doomer predictions for Bay Street. The economy smoked the economists last month. Big job gains. Higher wages. And proof the central bank was correct when it said the morass of the last few months would be temporary.

In case you missed it, the country turned out 106,500 April jobs. Yuge. In fact, that’s equivalent to the US creating a million positions in a month – which has never happened. It was the biggest banana in 43 years, taking the jobless rate to a four-decade low. The glorious land of beavers has now created 426,000 new jobs in one year and 700,000 over the last two. Plus, wages are up – a fat 2.5% – putting them slightly ahead of inflation.

More people are joining the labour force, and more of the new jobs are full-time, private sector gigs. Nice. As a result the dollar climbed and bond yields jumped. Concurrent with that, the imputed odds of a rate cut withered. It looks like the stock market was correct, ignoring the weakness of early 2019 and forging ahead about 14% so far in 2019.

Jobs, jobs, jobs. And you know what that means…


Unless something weird happens, the Bank of Canada won’t be lowering the cost of money. In fact, if the jobs-wages spiral continues and the October election doesn’t make Elizabeth May prime minister, the next rate move could well be higher. So, time to think hard about that mortgage. Why not take advantage of the current rate war and lock into a five at sub-3%?

Of course, when the cost of money is less than 1% above the rate of inflation, when financial markets are plumping and a balanced portfolio is rocking, don’t be in a sweat to pay off your home loan. An important part of diversification is ensuring your TFSA, retirement and non-reg accounts are well-funded at the same time you own real estate. Just pumping more equity into a single asset – especially when house prices remain elevated – is a risky strategy. No matter what your squeeze says. Think with your head. Not your pants.

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Speaking of hormones, here’s some statistical evidence that FOMO is probably the key market driver when it comes to newbies buying houses. A survey by Genworth (mortgage insurance) and Royal LePage (used Audis) found almost 60% of moisters nationally, and nearly 70% of those trapped in Toronto jumped into the market out of fear they might miss out by waiting.

Ironically, buyers in the last two years have mostly seen declines from 2017 levels, especially with detached houses, and particularly in poor, troubled Vancouver. By the way, we’re also being told 25% of recent buyers went from living with mom to becoming a homeowner, and a fifth of those believe this delayed their parents’ plans for retirement or downsizing.

Finally, most of the kids say they’d rather have a smaller dwelling closer to work than a more commodious one further afield. “This may be influenced by longer work commutes,” the pollster observed, “with Toronto and Vancouver residents reporting 34 minute and 30 minute one-way travel times both to/from work.”

Thirty minutes? Seriously? That’s a hardship? Better to live in a concrete box so you can skateboard to work?

Big reset coming in a few years. Condo alert.

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Not content with $2 trillion in mortgages, Canadians have now borrowed about $225 billion in home equity lines of credit. This is scary, since all this debt is at floating interest rates and these loans can be called at any time by the lender. If you’re sweet to [email protected], this will never happen. But it’s just one more risk to be aware of.

The bank cop, OSFI, has worried about HELOCs for a while. In fact look at the transit poster Matthew say on the train during his commute in Calgary this morning…


So now Ottawa will be requiring the banks to disclose how much they have in HELOCs, how people are repaying them, what consumers are using the money for, and how much of approved lines of credit have actually been utilized. Yes, more regs coming. We already know at last 25% of all borrowers pay only the interest on their loans, while an unknown number pay nothing – they defer payments and increase the amount outstanding each month until their ceiling is reached. We also know the fastest-growing mortgage type has a built-in HELOC feature, letting people expand debt by simply writing a cheque.

Now, $225 billion later, Ottawa is concerned.

What could possibly go wrong?

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May 10th, 2019

Posted In: The Greater Fool

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