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February 24, 2021 | The Last Gasp?

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.

Pete and Julie called to ask if they should list their Mississauga detached house (after eight years) this summer. “I figure it’s worth about $1.6 million now,” he says. “We can hardly believe it and, man, we sure need the money.” Covid stole Pete’s food importing business. No surprise since three-quarters of his clients were restaurants. Now all closed. Julie only works half-time these days in the office at the dental clinic.

“So,” he queried,” is this a good plan?”

No, I said. List now.

It’s becoming evident the market cannot sustain its velocity. Things are too nuts. The world is changing too fast. Even our vastly out-of-touch and wooden central bank boss, Tiff Macklem, is starting to get it. Here’s what he said yesterday: “We are starting to see some early signs of excess exuberance. What we get worried about is when we start to see extrapolative expectations,” he said. “That’s when homebuyers believe that past strength will carry on indefinitely.” You bet. However he then added: “but we’re a long way from where we were say in 2016, 2017 when things were really hot.”

Really, Tiff?

Let’s review recent detached home sales in Toronto, for example (and things are even more torrid in Woodstock, ON, Kelowna, Oshawa or Halifax). This chart from Scott Ingram, account and property guru, clearly shows the volume of properties selling for over the asking price in 2021 is running neck-and-neck with the insanity of 2017 – that brought down emergency government action.

We’re doing a GoFundMe page for the Tiffer so he can get some new glasses. Are you in?

And, yikes, are you watching what’s going on in the steamy bond market?

Traders are dumping debt because they smell inflation. That’s jacking yields and ensuring mortgage increases are closer at hand. There’s no mystery why this is happening. Commodity prices are shooting higher (there’s serious talk of oil at $100 again); we’re on the precipice of a major inflow of vaccine and mass inoculations (the US has now romped far ahead of schedule); the Biden White House will soon have a $2 trillion Covid stimulus package in place; the infections/deaths/hospitalizations have plunged across North America; over 70% of US companies are beating earnings estimates so far this season; when it comes to profits our banks are crushing it; demand for borrowing has hit a crescendo.

All these reasons combine to deliver this…

The bond market sees what’s coming…

That’s what five-year Government of Canada bonds are doing at the moment. The yield has almost doubled so far this year- and it’s still February. The same is happening with long US Treasuries, where a tripling is within sight. (Inflation and rising rates are one reason tech stocks got thumped recently and poor Tesla was road kill.) All this means it really doesn’t matter if the Bank of Canada says its key lending rate will stay low for the next two years, because the bond market has already rung the bell. Up she goes. Canadian fixed-rate mortgages are not set by the CB but rather by the commercial market, so increases seem inevitable. As we told you, the days of 1.5% (or less) five-year home loans are doomed.

Some smaller lenders have already started to swell their rates. “Others are threatening to hike rates imminently,” says mortgage broker/blogger Rob McLister. “There’s still no sign of increases from the big guns (major banks), but if this yield climb persists, it’s just a matter of time.”

And there’s one more chart the Pete and Julie need to consider. It plots the extent of house lust in our nation, showing conclusively that the Boom of ’21 is far more dangerous than that of ’17 because families are chowing down on record debt at rates we now know are destined to rise. Ouch.

…while Canadians chow down epic mortgage debt

During a time of global pandemic, recession, double-digit unemployment and no inflation Canadians added almost 8% to overall mortgage debt. Between home loans and LOCs we now owe $1.97 trillion, equal to the entire Canadian economy. It’s the fastest rate of debt accumulation in a decade, and the first time ever we embraced over $100 billion in a single year in fresh household debt.

This is why Peter and Julie can probably get $1.6 million. Now. Most people will never read the 700 words above. They think houses will go up forever because rates can’t rise. They see swelling prices. They get FOMO. They panic buy. How can you blame them? It’s a cash cow.

But don’t feed it. Milk it.

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February 24th, 2021

Posted In: The Greater Fool

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