January 3, 2020 | Dr. Garth

Forget Trump and Iran. Plus the impeachment. Oil surging wildly. Whipsawed markets. Australia burning. Hong Kong’s crisis. Climate change or the bond market. You can’t do diddly about any those things – but you can make good choices in your own life.

And that’s what this free clinic is all about. You’re just in time. It’s January 3rd, and the doctor is now sober! Who’s first?

“Longtime–daily–reader of “the greater fool’ here,” says Dave.  “The advice you have dispensed has been invaluable to my family’s financial health–thank you very much.

I have contacted you before and you have been kind enough to respond, so I am going to go to the well one more time.  This week you advised people to commute their pension, something you have mentioned numerous times over the years.  I am an Ontario teacher, and will be retiring soon.  Would you suggest I commute my pension or let it ride with the plan?

The reasons to commute a pension have been debated here fully. In general (a) when you can control your own financial future instead of leaving it to a pension plan, that’s a good thing; (b) retirement is long and your plan could run into trouble – not a big concern with being a teacher, but if you’re a GM worker, look out; (c) you can control your tax rate better in retirement by commuting; (d) commuted pensions are fat now, thanks to low interest rates and (d) by commuting you take over a lump sum of money which can be passed on to your family. Not so if you stay in the plan.

Of course, most people don’t commute because they’re afraid. Or misinformed. But this may be academic for you, anyway, Dave, if you’re over 50. Ontario teachers need to request commuting at least a month before that birthday. If you are, in fact, retiring at age 49, we’re paying you too much.

Jason lives in Calgary, saying “Happy New Year! I love the blog and the dogs.” But he is vexed, and with child.

My wife and I recently had a baby girl. We’re currently in the process of ditching the condo. We’re open to renting or buying. Our stash is big enough to buy outright, or perhaps with a small mortgage (e.g. no more than 25% of value), and still maintain sizeable investment accounts. I am leaning towards renting because it turns out I love liquidity more than mortgages and making repairs. Oh, and it’ll also be easier to flee the Republic of Alberta-stan in the worst-case scenario. I have only one conundrum.

I don’t want to run the risk of being booted from a rental property, especially with a kid involved. In this market I might be able to negotiate a multi-year lease perhaps with some options in our favour, but what are the chances of that?

They’re large. The Calgary real estate market sucks and is unlikely to turn, even if the Iranian/Trump/oil thing gets more extreme. AB problems are structural with the market still in a long, multi-year slow melt from extreme valuations years ago.

So, owners who can’t sell are eager to rent. A nice detached in a good hood can be yours for $2,000 a month or less on a yearly lease. A tenant willing to sign on for two or three years would be a godsend for many of these desperate homeowners. All you have to do is negotiate, and make an offer that protects you – lengthy tenure plus clear-cut provisions if the lease is not honoured by the LL (like an obligation to find you comparable accommodation, long period of notification and/or a big monetary compensation). Hire an agent to represent you, and get the owner to pay for her, too.

Brian also has a snappy MSU (“I want to thank you for distilling complex economic news and trends. Reading your blog daily makes me feel smarter than I am.”) so let’s dive into his little First World problem…

I’m hoping you can give me some Dr. Garth advice. Our house has thrown us a curve ball with a 20k repair, and it’s causing me to have to break one of my two rules: don’t touch our investments until we retire in a few years (we’re 60), and don’t have any debt.

My wife and I both work freelance so income is sporadic. That also means that, other than CPP/OAS, we have to create our own pension. Our minimum goal is 650k, and we’re currently about $100k short.

So my question is, which rule do I break? Borrow money from a 5% unsecured LOC, or cash out from our non-registered investments that I was going to move to our TFSAs on Jan 1? That said, I know we’re fortunate to have these options.

Damn straight.

Let’s assume you have lots of equity in your home (no mention of a mortgage) and your real estate has been appreciating far more slowly than your portfolio. So this is easy – get the house to fix itself.

A home equity line of credit is available these days at 4.5% or less, and with interest-only payments. That’s $75 a month for twenty grand. If your house appreciates by $900 a year, you’re a genius.

Finally, here’s #NotLegalAdvice who says, sucking up nicely, “Throughout the year, my family has religiously read your daily blogs and they have been the subject of numerous debates (this is a HUGE MSU).”

This email is actually being sent on behalf of my wife who has been reading your blog for over a year now. We were once very keen on buying on a house in the GTA, but have lately been leaning toward continuing to rent. We are currently living in a 1B1B in Mississauga and pay a rate of $2000 / month.  As you can imagine, there isn’t much space (500 sq ft).

I am a strong believer that the real estate market in the Ontario (exception: Toronto) will collapse in the near future (really hoping on 2020). Household income to debt ratio is at an all time high and continues to grow. All it takes is the Bank of Canada to increase interest 2 times and down she goes. However, this is unlikely to happen in 2020, right?  Do you see any realistic scenarios in which the GTA, or Ontario, will experience a real estate collapse next year? By collapse, I’m referring to a 10 – 20% correction.

Two grand for 500 feet? In the boonies? Obviously she loves you to put up with that. Must be because she reads this blog – a guaranteed, proven aphrodisiac. Good work.

Will the GTA or southern Ontario market correct by 20% in 2020?

Anything’s possible, but that scenario’s unlikely. The bank rate may creep higher, but that would be due to inflationary pressures, wage growth, Fed hikes and economic expansion – also fuel for the real estate flames. Yes, debt’s at ridiculous levels but this hasn’t stopped people from slurping up more of it. Given new political incentives designed to hike housing demand plus natural growth in the area, the best you can hope for is a flatline or modest decline. No collapse.

Have you considered Calgary?

Garth Turner January 3rd, 2020

Posted In: The Greater Fool

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