May 13, 2021 | Fun Money

Matt’s easy to hate. A wealthy, uppity Millennial. But he comes here daily, which is refreshing. If you can’t be poor, at least be humble.

“Love the blog, it’s fantastic,” he says, in an acceptable MSU. “The advice has kept me out of the housing market, invested, and as I turn 30 this year I feel comfortable with my life. It’s also led my fiancée into a change of thinking, believing now that renting and having money for fun is better than being tied to a house.

“My question is this: We’re getting married this year, so should we combine accounts, and go down to a joint chequing account, a joint savings account for some short term savings, and then 2 RRSP’s, 2 TFSA’s and 1 non-registered account? And should I go with her financial advisor, or keep doing my own thing with my RRSP’s and TFSA’s?

“I make about $200k before bonuses, she makes just over $100k. If she gets moved to full-time later this year, she’ll have a pension but we’ll assume she doesn’t for now. Rent is $2442 a month, utilities included (except internet). We have no debt, own our car out right, and don’t really have any financial requirements other than a 30ft sailboat here in Toronto. Between us, we’ve got about $180k in RRSPs, $130k in TFSA’s and another $100k or so in various savings accounts (some for wedding, some non-registered, some in flux between accounts). Everything is invested in either low cost eSeries mutual funds (me) or managed by a fee based financial advisor (about 1% per year, her). Can’t wait to hear back!”

Easy answers. Yes. Sounds like you already cohabit with marriage being a formality (and don’t spend too much on the nuptials. A weekend camping should be enough). Thus, you and she are an economic unit. The sooner you start acting like one, the better.

A joint chequing account makes sense since it makes a budget easier. Integrated registered investment accounts – RRSPs and TFSAs – help prevent overlap and duplication of assets and are essential if you want overall balance and diversification. To that end these should all be managed together, and best by an actual human who can also help with stuff like tax minimization, rather than bank funds run by people you’ll never meet. You & the squeeze should also open a joint non-registered account, especially if she scores a corporate pension which may mean throttling back on RRSP contributions. Once married the NR account also gives added financial protection, since all the funds go to the remaining spouse if something awful happens (getting run over by a Boomer etc).

Finally, to all the house-humpers who read this pathetic blog, let’s state the obvious: you two have high incomes, a huge savings rate, over four hundred grand saved, a boat, mobility, freedom, no debt and you’re just turning 30. If you succumb and buy a house in Toronto you’ll have high incomes, no savings, no investments, no flexibility and a $1 million mortgage. This is why they hate you, Matt. Well done.

Now, let’s contrast Matt’s joyous liberation with the morose and stormy mood of his FOMO-addled peers. Lately they’ve organized on Reddit to whine and moan about house prices. A r/crowdfunding campaign will be erecting billboards in Toronto and Ottawa soon saying, “Can’t Afford a Home? Have You Tried Finding Richer Parents?” and “Homes Aren’t For You. They’re For the Rich. You Can Rent.” Aren’t adolescents cute?

“We’ll be the generation that can never retire because of housing prices. The barrier to entry has never been higher,” the organizer told Bloomberg. Of course, Matt will have a couple of million in income-producing liquid investments by the time he’s fifty, while the Reddit crowd, if they buy property, will still have mortgages, roof repairs and scant savings.

It’s dawning on folks that real estate inflation is nothing but bad news. The wealth divide grows ever greater. Household debt is ridiculous. The gap between generations widens. Way too much capital flows into non-productive resale real estate. The whole economy becomes overly dependent on a single asset class whipsawed by feelings and flighty emotion. Plus, personal finances are gutted as people try to afford what they actually cannot.

The latest Nik Nanos survey confirms shifting sentiment. Seventy per cent say house prices are a serious problem, and half want the Bank of Canada to grow a set and raise its key rate. “Even though there is no consensus, the fact that one in two Canadians are good with a rate hike speaks to the appetite to cool down a hot housing market,” says the pollster.

As we all know, the central bank has clucked about real estate affordability, yet done nothing. The big federal budget last month also choked. Just a small tax (1%) on vacant houses owned by non-residents – which is meaningless. We continue to have no effective tax on flippers or speckers, 100% exemption on windfall gains for owners, tax-deductibility for investors, debt-inducing 5% down payments, programs to encourage more demand (RRSP plan, shared equity mortgage, newbie tax credits) and emergency interest rates. Combined with WFH and pandemic nesting, it’s all pushed real estate up by 30%. In some places over 60% – in just a year.

Matt gets it. Earn, save, enjoy, invest and let FOMO pass you by. There’ll be days ahead when real estate makes sense, when public policy and social interests align again. When leaders find the courage to lead and the squirmers on social media lift their gaze from their navels.

But not now. So let’s go sailing!

Garth Turner May 13th, 2021

Posted In: The Greater Fool

Next: Gates – Buying the Press to Hide his True Nature »