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January 21, 2020 | The Failure

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.

Alas, this blog has failed. Perchance it’s time to pack up the kibble and squeaky toys, the ETFs and the spreadsheets, and scamper off into the ether. After all, what’s the point? The nation ain’t listening.

We have several reports. Be strong.

A week ago the central bank released a survey of what people anticipate is coming. The bottom line: Canadians want to increase spending more than expect incomes will rise. That suggests more borrowing. We’re already at a record level. Ouch.

Now, worse, comes the latest Consumer Debt Index (MNP) with this shocker: 50% of people are now within $200 a month of insolvency – unable to pay the bills. Forty-nine per cent say they’re not confident they can cover expenses without adding to their debt (which, of course, increases expenses). Says the company: “Our findings may point to a shift among some Canadians from debt apathy to debt hopelessness. Feelings of hopelessness can make people feel like giving up on ever paying down their debt or, worse, ignoring the debt as it piles up higher.”

Let this sink in. If half your neighbours are barely making ends meet, how are they saving anything for the future? Retirement? Kids’ educations? A crisis? And if 70% of Canadians own houses, what in Dog’s name are they thinking?

There’s more.

How many first-time homebuyers do you figure are being pushed into real estate they can’t afford by their parents? Well, in BC it’s 90%.

A survey of BC notaries found nine in ten young buyers are being financed by their families – up from 70% five years ago. And while it’s laudable Mom & Dad want to see Squirt buy his first condo and become a fully-functioning indebted adult, the reality is such buyers are not worthy. They need a handout just to make the downpayment – stark proof they’re taking on an obligation which is beyond them. Odds are if the Bank of Mom didn’t exist, buyers would dry up and prices cascade lower. We are fools.

And speaking of condos in Vancouver, here’s another reason people are failing financially.

Last month the average concrete box in YVR sold for $667,875. So if you bought one a year earlier, you lost $52,000. Plus $12,000 in closing costs and another $34,000 in realtor commission if you bailed. That would be a hit of $97,000, or 13%. Plus strata fees and property taxes. In this scenario, renters win. Owners pay.

According to analyst Dane Eitel, this will deteriorate further. Check it out, kids:

We forecast further price losses in 2020, with prices likely breaking downward out of the current divergent trend. That will result in some volatile price movement, with a high probability of seeing prices test the $600,000 threshold.

Ultimately before the market settles at the bottom. Eitel Insights forecasts that the Greater Vancouver Condo market will test the $525,000 threshold. Which would signal a price correction of 30% from the peak.

Pity those who did not bail when the delusion was at its highest. How could so many actually believe an asset would rise in value forever, when none have done so before?

Meanwhile some people want to make our real estate and debt affliction worse. Like the CD Howe Institute, and even the current Bank of Canada boss, Stephen Poloz.

The idea: bring 30-year US-style mortgages to Canada, where most people now take only 5-year versions. The Interest Act, which makes loans payable after 60 months, has prevented long mortgages with fixed rates, but Ottawa is being urged to change that. The proposal: loosen the stress test. Make it easier to pass for those taking out multi-decade loans, willing to extend their debt obligation much further into the future. And a lower stress test barrier means more can be borrowed. House prices go up.

Well, that’s just this week’s news. But it’s enough. Are we on the wrong path as a society? Sure feels like it. The goal of life is not a house, but we’ve made it so. Real estate lust is directly responsible for a plunge in savings, a leap in debt, a cash flow crisis for half the nation and a looming retirement crisis. And because this is a democracy, rest assured the bad choices of many will become the bane of existence for the few. Like you.

Only the foolhardy will fail to keep their head down, or stop blogging about it.

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January 21st, 2020

Posted In: The Greater Fool

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