The real deal

Nancy’s in a state. “Hope you pick a scared-looking puppy for this post,” she says.  “Feels very appropriate.”

No, we’re gonna use a cat.

However, she caught my attention with a pretty good MSU: “My husband initially forced me to read your blog (out loud to him) with plenty of sighs and eye rolls on my end but now I look forward to our nightly ritual, I swear!”

Okay, N. You’re in. Now what’s this anxiety thing?

I’m hoping you can quell my anxiety right now by helping us not lose all of our money. We make 160k combined and have close to 900k invested in rrsps and tfsas. Our investments are relatively balanced but we do own pretty large portions in our “winning” stocks (Tesla, Shopify, Apple and Facebook) the rest are in ETFs. As the stock market is currently taking a gargantuan tumble, what should we do? Should we take our money out now and buy again at the bottom? Should we stay put hoping this sneaky virus goes away and things return to normal? Should we buy a house with our money – seems like that market isn’t being effected by the virus… Please help otherwise I’m afraid we’ll be right where we started years ago with nothing left in our savings!

Yes, fear is the strongest of emotions. It trumps greed, sex or the way you feel when someone says ‘hereditary chiefs.’ This week has been ugly for investors as the virus spreads, traders take risk off the table and the stock market lurches into a correction (down 10%). As described here two days ago, money has cascaded from equities into bonds, driving prices up and yields down. Oil’s been whacked as have most commodities. And look at volatility – wow, an eruption. Similar to 2011.

Now contemplate the comment made by blog dog Bill about the stock market’s slide from record highs. This is what I mean about the effect of fear:

Garth doesn’t get it. This virus is the real deal. Tens of millions will die. The global economy will be completely wrecked. I think we break the 2008 lows. Ultimately, your investment portfolio right now is going to be less of a concern than how much food and supplies you have stocked up on. It’s going to be a shock when this hits people and they will panic when they realize how unprepared they are. Grocery store shelves will get cleared out one day soon. It’s happening.

Covid-19 cases are fading in China and growing outside. The crap on social media and the icy fingers gripping the hearts of some of wussy doubters down in the steerage section are predictable. People never change. They think half the world will get this and countless millions die. But in Wuhan, a city of 11 million, there were (at most) 70,000 cases – .6% of folks. Deaths there have run at 0.02% of the population at large.

So, Nancy, there may be empty store shelves in the coming weeks but you probably won’t get the virus and you surely will not die. Nor is this what Mr. Market has been worried about, either. Instead the issue is a drop in global economic output caused by the public health response, leading to diminished corporate profits. If you think that sounds like a temporary hit, well, bingo. Exactly the case. And in that reality there is much optimism.

Investors hate uncertainty, so until a timetable emerges, the selling will continue. We’re maybe half-way there. The correction of 10% that has occurred could turn into a 20% drop – the technical definition of a bear market (the same thing happened at the end of 2018, when people on this blog utterly capitulated. Then markets gained 30%.).

What’s likely to occur at that point (or sooner)? Central bank action, for one. The market now believes rates will drop two or three times by the end of the year, lopping 60-70 basis points off existing levels. That will inject a huge amount of liquidity into the economy, and because this is a global issue there will be a global response. Central banks will likely move in a coordinated fashion, while governments also scramble to restore equilibrium. Look at Hong Kong. This week they handed spending cash to every adult.

Meanwhile the reasons markets went up two months ago are still in place. “Even with the retracement… we’re still at cycle highs,” says a Wall Street manager. “But once we get through this very large uncertainty, markets will have an enormous coordinated tailwind of fiscal and monetary stimulus to help those equity valuations in 2021.”

Expect the Bank of Canada to trim its key rate in April, given the virus, the FN blockades, the oil sands disaster and the plopping price of oil. (There should be a cut next week, the CD Howe Institute argued on Thursday.) All that is pushing Canada towards a temporary recession, and pushing the bank to act. Which it will.

So the virus may be a new challenge, but the ultimate pattern should follow that of past shocks – from the GFC to Y2K to 9-11. It may come with more emotion, and more disruption in daily lives if subways and schools close for a while. And the sight of malls full of people in surgical masks is chilling.

But in terms of your portfolio, Nancy, sit tight. Never sell into a storm. The balanced and diversified part will be fine. The individual stocks will be more at risk. Sounds like you failed to realize capital gains and move them into safer, broader assets. Remember that lesson for next time.

Yes, there’ll be one. We shall have exactly this conversation again. Count on it. Now go and load up on toilet paper before Bill hoards it all.

Letter from a Chinese blog dog…

Thursday, 8 pm ET. I just received the following letter from a regular reader working in China, who is living through the Covid-19 storm. You might find this of interest.

Writing you again as a Canadian investor working and living in China through the Coronavirus.  I’ve written you in the past, but I just thought I’d share with you a response to Bill who you featured a fearful comment from today on how the Coronavirus is going to destroy the worlds population and market.

Over here in China (where I’ve been living and working for over 2 years now), at least in my southern city near the Hong Kong border things are returning to normal. More and more shops are open.  People are out and about in parks and sidewalks.  People have returned to work – myself included.  Everyone still wears masks outside their house all day and we sign in to every location we visit via an app so potential outbreaks could be tracked quickly.  But there hasn’t been any new confirmed cases in this City of nearly 20 million in days.

As a daily reader of this blog for years now, who’s recently started a new job with a 30% salary increase, I’m excited to see this downturn and will be investing every cent I possibly can into this storm to take advantage of these sale prices!

Thanks again for all that you do!  You’ve helped this moister relate more to boomers financially, and looking at my portfolio, that’s a good thing.



Pension pooched

Made your RRSP contribution yet?

Wait, keep reading. This isn’t another tedious piece on tax-free compounding, using a retirement plan to split family income, making a contribution without having any money, how to remove funds without being taxed nor how the entire system is dramatically skewed to benefit high income-earners, medical professionals, lawyers and the self-employed. You already know that stuff.

Instead, let’s revisit a fav topic: how pooched everyone else is.

How much do you need to retire? That depends on when you hang ’em up and how much you spend, of course. Plus if you have kids or wish to leave an estate for others to squander on stuff you’d never buy. There is no static answer. Some people say 30x your annual working income is the right number. Investment giant Schwab suggests $1.7 million is a reasonable goal. Fidelity says you need enough saved/invested to replace 80% of your work salary. Anyway, the Internet teems with financial calculators you can use to come up with your own target.

Then compare your readiness with this dismal set of facts:

  • As mentioned before, people retiring without a defined corporate pension have an average of $3,000 saved. Yeah, they probably have a house, too. But you can’t eat that.
  • About a third (32%) between 45 and 64 have saved… nothing. Seriously.
  • Roughly a fifth (19%) have less than fifty grand. But the average amount Canadians have saved/invested for the future is $184,000. That tells us a small slice of folks have saved a boodle. A giant slice of people are heading for a future of KD and CPP.

Now on that point, we all need to understand clearly the public pension system in Canada will not save you. Not with the recent enhancements, either. If you’re a Millennial, the higher benefits (a max of just over $20,000 a year) don’t click in until the average moister is 76.

Today the max someone can collect in CPP is $1,175 a month, but very few qualify. So the average received is $672, or eight grand a year. Grocery money. Old Age Security goes to everyone at age 65 (for now), and that adds $613. So the total in government pogey the average person receives is $15,420. If that were your only income, then the GIS (Guaranteed Income Supplement) kicks in at a max of $876 per month, bringing  the grand total of public assistance to $25,932 – or about two thousand a month.

Married people get less GIS, but it’s still possible for an average household of two to receive a total of about $45,000 annually. Maybe all the people with little or nothing think this is enough to get by on, which is why they don’t save or invest. Given that the median household income in Canada is north of $90,000, this translates into a 50% drop in retirement. So ask yourself, could you suddenly live on half the money you’re getting from employment?

Let’s compare with the deplorables in Trumpland (which some people think may soon be the home of Bernie’s Sandersnistas).

The average monthly Social Security payment in the US is $1,471, or about $1,900 in moose money. Therefore it’s three times more than CPP pays (on average). By the way, the max SS payment of $2,210 at age 62 is about twice as generous as CPP – and it grows from there: $2,900 a month if you wait until 66 and $3,770 monthly ($45,300 US) at 70. So a couple of wrinklie old pensioners who worked all their lives could actually see up to ninety grand a year.

But what about household savings?

A new survey by TD Ameritrade says 50% of Americans have more than $100,000 – way better than us. Most of this is in the hands of people over the age of 40 (no surprise there), yet Millennials in the US are the ones most often stuffing their Roth IRAs (the American equivalent of our TFSA).

Hmm. The average American has saved more money for retirement, and the US system is far more generous with public pensions. So how did we get so smarmy and snooty, believing the States is a land of dumpster-divers, people who spend everything on Glocks and trailer park rednecks where financial illiteracy reigns supreme and society is divided between billionaires and losers?

Beats me. The CBC maybe. Or our political elite. Maybe it’s the whole real estate-government complex.

After all, the US rate of home ownership is lower than in Canada by almost 10%. American households carry far less debt, and actually reduced borrowing a ton after the housing market blew up. Plus the median cost of an American house is just $228,000. The average paid by first-time buyers is $219,000. There are porta-potties in Vancouver worth more.

Thus, when it comes to the financial state of Canadians, this pathetic blog’s thesis stands. It’s suicide by house.




Virus. Oil sands crisis. Pipeline constipation. Pop-up FN blockades. Tumbling oil prices. Vanishing capital. A timorous federal government. Oy. The news lately has been dire.

Well, for all you people in Alberta, stranded by illegal protests, watching real estate equity fade, seeing energy jobs snuffed by the Forces of Greta, feeling alienated and wondering why people burning tires on railway lines are getting more attention than you, stop being so darn selfish. I mean, sheesh, there are people in Toronto who actually can’t afford a nice, seven-figure house.

Seriously, the divide is growing. Yawning. Covid-19’s impact on the price of crude is just the latest assault, as the black stuff heads south of fifty bucks, and Canadian oil drops through $29 – down 6% on Tuesday. Ouch. As global economic activity is impacted, energy consumption takes a hit, with Calgary and our oil patch along with it.

Now the FN protests have turned a structural problem into an intractable mess. They’re not about just a pipeline anymore. It’s land. Residential schools. Missing aboriginal women and girls. Unceded land. Treaty rights. A thousand years of injustice and colonialism. Plus climate change. Just as crazy Bernie has mobilized America’s young in favour of wealth redistribution, endless tax and more government control, so have indigenous activists in the land of maple co-opted the kids who want climate revolution. Behold the faces on the urban protest lines.

Meanwhile it looks like the virus will end up pushing Canadian mortgage rates into the ditch. As stocks swoon and viral fears mount, money slides into bonds, driving prices higher and yields lower. Look at the return on a five-year Canada bond – down below 1.2% on Tuesday.

Lenders fund fixed-rate mortgages in the bond market, so a drop there of this size pretty much guarantees the cost of a home loan may be dropping again. Says mortgage blogger-brokerguy Rob McLister: “There’s now no doubt that this global outbreak has the potential to take fixed rates down another 1/4 to 1/2 point, if not more.”

You bet. And remember that the mortgage stress test was recently diddled by the finance minister, under direct order from T2. This means the anticipated new rate of 4.89% (a drop from 5.19%) could turn into something even juicier for newbie borrowers, increasing their ability to more easily slip beneath the waves of debt.

Therefore get ready for a five-year fixed at 2.5%. And don’t be surprised if some hopped-up CU comes out with a buck-ninety-nine offering for the prime rutting season. Combined with the current paucity of listings in the GTA (as in Vancouver and Montreal), it means more price pressure. More bidders. More borrowing. More unaffordability.

By the way, nobody seems to be enjoying this. A Zillow/Ipsos poll just found 77% of GTA residents are concerned they can’t afford the real estate they want. Also 70% of sellers/owners fret that they can’t either – which is exactly why listings have taken a kick. When people figure they can’t afford to move, they don’t sell.

The same survey found 84% of people think Toronto’s in a bubble, at risk of correction. Compare that with just 61% in YVR or a dribble of 8% in Cowtown. Like I said, we’re drifting into two economic solitudes. Worse, the very concept of our nation is being shafted and disrespected by the #ShutDownCanada movement, the FN rebels and their dewey-eyed young altruistic, Twitter-fed disciples.

Well, let’s see what the virus news is in a week, a month and a season. So far it appears poised to exacerbate tensions in the land of the beaver. Low oil, lost investment, pipeline gridlock and environmental rebellion on one side. Cheap money, FOMO and exploding household debt on the other.

It’s interesting an entire Calgary downtown tower is now standing empty – 600,000 square feet, no tenants. (The overall commercial vacancy rate is a withering 30%). In 416 these days kids are paying $1,200 to $1,400 for a single square foot of space. A 500-foot condo can fetch $650,000, which is 50% more than a nice detached house on real dirt in Edmonton.

Outside the GTA on Tuesday activists shut down commuter train lines. On the west coast they blocked access to the Port of Vancouver. Elsewhere in BC, Ontario and Quebec roads and rails were rendered useless to traffic. And in Toronto there are apparently heavy casualties from the bidding wars.

Remember what this blog told you about being liquid and living quietly among the masses? Dancing with your dog? It’s time.



Not so bad

After roaring through 2019 and romping to new record highs in past weeks, stocks markets have gone into a funk. Yup, the Dow shed over a thousand points Monday. Guts everywhere. A global plop. Bonds soared. Gold advanced. Oil sunk. The US dollar jumped.

First, let’s have context. The drop Monday didn’t even make it into the Top 20 days for losses on the Dow. Not even close. The granddaddy was a 22.6% rout in 1987, and the worst day during the GFC was 7.8%. So the current drop of  3% was like shutting the car door on your foot. Painful but not fatal.

Having said that, there’s no covering over the fact Mr. Market is upset. The virus is a tricky little bugger, and has now made unwelcome inroads into Europe and the Middle East after munching its way through Asia. It’s not that Covid-19 will kill millions of people – thankfully the mortality rate is low – but it’s kicking the hell out of local economies because of massive quarantine efforts.

More than a million companies in China might fail. Supply chains for behemoths like Apple are starting to break down. The cruise business is dead. Travel is massively disrupted. Q1 GDP in China will be a disaster. Global economic activity has started to decline. That’s cratered oil and commodity prices as investors anticipate weak demand.

In response equity markets – at record levels – have shed froth. That money has coursed into the usual safe havens, especially government bonds. As demand boosted their prices, yields plunged. The return on a 10-year US Treasury is close to its all-time low. Government of Canada five-year bond yields crashed 7%, back down to just 1.2%. Unless things spike it pretty much guarantees lower mortgage rates are coming.

In fact, events of Monday increased the odds central banks will cut rates more than anticipated, and battle the virus with a big shot of chicken soup and liquidity. Look for major stimulus from the Chinese bank, the ECB in Europe and the American Fed. By the way, Canada seems okay in the context of this evolving mess. Despite the Teck decision and the goofball railway blockades, our CB has kept rates at tolerable levels, giving the Bank of Canada more room to soft-land things.

Well, the deplorables cry, how bad is this? Are we doomed the way all the web sites selling gold bullion and ammo claim?

Nah. It’s noise.

The virus is real, spreading, unpredictable and will take months to overcome. But it’s not the plague. A vaccine will emerge. The flu kills way, way, way more people every year, and markets totally ignore it. This has the hallmarks of a temporary crisis. Like Y2K.

So it’s wise to focus on what drove markets higher before some moron somewhere ate a bat and puked on his neighbour. Markets have risen on a tide of robust corporate profits thanks to the power of the US economy, where unemployment is at a 50-year low, consumer confidence is on a roll and an 11-year-long expansion is firmly in place. Virtual full employment has fueled an economy which is 70% powered by consumer spending.

Says fancy portfolio manager (and second-rate blogger) Ryan: “No one should be surprised by this sell off. Since October markets are up huge leaving the equity markets extremely overbought and vulnerable to a pullback. This sell off should be expected and welcomed as it will work off the overbought technical condition and reset expectations. While the news updates on the Coronavirus are scary this should not derail the global economy and bull market.”

Yeah, but what about Trump?

No doubt his corporate tax cut helped ignite the spending which created jobs, as did deregulation and protectionism. Under this president inflation has returned, government deficits have exploded and expansion has been startling. Markets love that. They want more. And Bernie’s giving it to them.

  The victory of Democratic presidential contender Bernie Sanders in Nevada on the weekend was all Trump could have hoped for. The 78-year-old socialist has a good shot of being the orange guy’s rival in November, and radical enough to keep millions of Dems at home for the vote. Unless Super Tuesday changes everything – launching little Mike Bloomberg or resuscitating Joe Biden – then Bernie’s the guy. And Trump wins again.

As you know, Trump takes the market and the economy as proxies for his presidency. He thinks the Fed should seriously chop rates again. He’s busy doing trade deals around the world (India this week). He thinks climate change is an expensive hoax and the energy business should have free reign. Moreover it’s hard to imagine he’d let the US transportation system be shut down for weeks because of a few FN radicals in a snowplow pickup truck.

So, the virus will likely get worse, then better. Central banks will intervene. Economies will spike back in the midst of pent-up demand. Markets will recover as the American election cycle draws to a conclusion. Corporate profits will continue. Interest rates will drop. People who ignore things will sail through. Those who panic and sell will regret it.

“If the US November Election follows the UK results where the Socialists get the worst defeat since 1935,” says one Bay Street vet, “then markets will like that. Markets will probably like another 4 years of 45. The confusion and chaos are set against the background of solid economic growth. Not so bad.”



The Joneses

DOUG  By Guest Blogger Doug Rowat


Admit it, your neighbour’s flashy new SUV pisses you off.

You’re not jealous to the extent that you wish a tree falls on it, but it still aggravates you.

This has been one of the most significant revelations of my financial-advisor career: the extent to which people evaluate their financial situation against that of their peers. One of my most frequently asked client questions is, without a doubt, “how am I doing relative to your other clients?” In a sense, we’re always, figuratively and literally, comparing our SUVs.

Now, almost every personal finance website gives similar advice: don’t compare, refrain from jealousy, set your own goals, be your best self, etc.

While this advice is nurturing and politically correct, it certainly isn’t pushing anyone to take their finances to the next level. Comparing yourself to others can be useful and motivating. Mario Lemieux didn’t have pictures of fourth-round draft picks on his wall, he had pictures of Guy Lafleur. Using the success of others as aspirational fuel is helpful. Even occasionally becoming angry at the achievements of others has merit. Again, Mario Lemieux went on to overtake Wayne Gretzky as the world’s best hockey player shortly after Gretzky was named (unjustifiably?) MVP of the 1987 Canada Cup. Lemieux didn’t like that one bit and their feud continued quietly for more than a decade—a decade where Lemieux clearly became the better player.

What these personal finance websites do correctly observe, however, is that the true financial state of your neighbour is impossible to know. And looking only at someone’s apparent financial success is pointless. Was your neighbour’s SUV, for example, bought on expensive credit? Did a rich relative help them out? Did they simply overextend just to impress?

It’s important to measure yourself against TRUE, not imagined, wealth. In other words, compare yourself to benchmarks that are transparent and accurate. The financial goalposts that you’re chasing should be based on empirically gathered data, not uncertain conclusions drawn from catching a glimpse of your neighbour’s new Q7.

Statistics Canada last year published its Indebtedness and Wealth Among Canadian Households report and this report might be as good as we’re going to get in terms of determining how well we’re actually doing versus others in this country.

It turns out that the median net worth in Canada is around $300,000 and it’s been growing by about 4% annually since 1999:

Median family net worth: Canada and selected cities

Source: Statistics Canada, Turner Investments

Keep in mind that net worth is only one indicator of financial health. You might have a net worth well above the median, but if you have high debt levels that require perfect job security in order to service that debt, then your financial situation might actually be quite precarious. However, net worth does set some rough goalposts.

If you want to dig further into the numbers based on age ranges and family types, you can do so here.

So, how do you stack up? If you don’t like the picture that the report paints for you, don’t wait for the figurative tree to fall on Canada’s SUV—go out and change your own financial situation. Start by educating yourself—and regularly reading this blog’s a good start.

Earn yourself that new SUV (or whatever it is that’s important to you). And if it turns out to be nicer than your neighbour’s? Well, so be it.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.




Best estimates are that half of all new condo sales are to investors. Well, they may call themselves that, but in reality they’re cannon fodder for the real estate development business. Without them, prices would be lower, urban skylines not be pierced by cranes and reasonable companies would be building nice rental accommodation instead of acres of concrete boxes fetching a grand a foot.

(Actually a new launch in Toronto’s Liberty Village this week boasted of prices ‘only in the $1,200 range – $200 to $300 less than standard.’ So a 445-foot apartment – barely large enough to swing the average cat – is on for $544,000. Plus $6,500 for a locker and $75,000 for a parking spot. Yikes!)

Why do investors snap up precon units, buying real estate that doesn’t exist yet which has no dirt?

First, it seems cheap. Five grand down. Another 5% in a month, with the remainder of the deposit spread over a year. Second, condos always go up, right? Your friend Vinny’s cousin’s girlfriend made out like a bandit on that unit, somewhere, that she sold on assignment before construction even finished. So this is a sure thing. And then there’s the visceral pleasure of potentially being a landlord, and ‘letting someone else pay your mortgage.’

It’s a pitch that has lured tens of thousands of people in the past couple of years, and kept those cranes going up. Yes, some folks have made money. But many have not. And many, many more may learn the same lesson – these days landlords subsidize renters, not the other way ‘round.

A suspicious blog dog recently sent me the pitch for a new condo building in Barrie, where the elk and caribou go to diddle and mayhem reigns on Hwy. 400. Aimed 100% at amateur investors, it promises to double your money in three years. Could this be true?

It turns out a one-bedroom unit of 563 square feet sells for $410,000 – which is cheaper than Liberty Village, but you need lithium battery-powered thermal undies to live there. A 20% deposit of eighty-two grand leaves a mortgage of $328,000 and combined with condo fees and taxes, the monthly nut is almost $1,900.

The developer says this will command rent of $1,830 – which is brazenly optimistic, since the market rate in Barrie is $1,400 for a one-bedder (a whole house can be rented for less than two grand). So the odds are an investor would be in negative cash flow from the get-go.

So how do you double your money in 36 months?

Here’s the formula given to the suckers contemplating a purchase:

Click to enlarge. Wear protection.

Turns out the modest (and inflated) positive monthly cash flow is added to the reduction in mortgage principal over the course of three years, then goosed wildly by an anticipated $64,600 increase in the value of the condo unit. That totals a $94,670 ‘return on investment’ of the $96,231 an investor spent. So the logic is you receive 98% of your money back, which is an “Average Annual ROI of 32.79%”


In actual fact, a buyer would have received (maybe, if lucky) $245 per month while actually spending $96,231. That’s cash flow of $8,820, for a real-world ROI of 3% – about the same as a GIC, and taxed at the identical rate. The only way an investor could realize more is in the event of (a) a sale and (b) at the fantasy future price. Of course, that would come after paying a commission of $28,500 (plus HST) which would seriously reduce any potential return.

“Double Your Money in 3 Years!” is a lie. Shame on the marketing company which produced this material. Shame on the regulator for allowing it. Shame on Hersh Condos for preying on the gullibility and greed of others.

But if you really want one, these beauties are available for four hours only, next Wednesday afternoon. In Toronto, of course. Barrie isn’t safe this month. Bears.



The big deal

By gelding the mortgage stress test the feds just doled out a giant gift. No, it’s not to the kids who can now borrow more, swallow additional debt and offer a premium for inflated houses. Instead, it’s to the real estate-industrial complex. The lenders. The insurers. The reno guys. The appraisers. And, above all, the realtors. Sorry, that should be Realtors®.

As you know, the Trudeau guys – the ones who surrendered on Thursday to the lawless aboriginal protestors – dropped the stress test hurdle this week by about a third of a point. By changing the formula, the qualifying rate fell from 5.19% to 4.89%. It’s a big deal. The first meaningful drop since the thing was created. And it comes at a weird time – when nobody needed to step on the gas.

Here are a few of the reasons this sucks…

First, it’s spring, almost. At least there are cherry blossoms in Vancouver and hormones everywhere. This period – March through May – is the strongest of the year for residential real estate sales. Prices always peak before settling back a bit for the summer. The nesting instinct grows irresistible as the green shoots erect. Otherwise reasonable people turn into goey masses of residential desire, stumbling through open houses muttering, “Where do I sign?”

Second, major markets are toasty, verging on boiling. Prices have been snaking higher in Toronto, southern Ontario, Ottawa, Montreal, Halifax and even in YVR and Victoria. Not only has the impact of the stress test faded in the last two years, but mortgage rates have plopped to near-historic lows while listings have shriveled along with them. More demand and less supply is a formula for price pressure. Homeowners watching property values inflate have concluded they can’t afford to move, may not pass the test if in need of more financing, or just want to bank bigger gains before bailing out. In any case, they ain’t going to market.

Third, the ‘housing crisis’ that every government has been trying to address comes down to one word. Affordability. The average family can’t afford the average house in these places, given the asset inflation that’s occurred since central banks trashed rates back in 2009. So how will reducing the stress test and giving buyers more borrowing power improve affordability? Right. It won’t. Things just get worse.

Fourth, making mortgages fatter by allowing buyers to qualify for greater amounts means more debt. Sheesh. Already we’re at record debt-to-income levels. A majority of buyers in the GTA, for example, have ratios of 450% or more. The savings rate is down. Four in ten people have trouble servicing existing debts. Mortgage totals now exceed $2 trillion. Is it remotely responsible for the government to signal that borrowing should increase?

And, as a result, you can kiss off any further Bank of Canada rate cuts. At least for a while. Seems the central bank is the only adult left in the room these days, worrying about the steaming mountain of borrowing and the potential negative impact that could have on the entire economy – which is two-thirds made of consumer spending.

Meanwhile the national mortgage association says the stress test is still too high, “especially given our current economic climate and general expectations of future interest rates. Uncoupling the stress test from the Bank of Canada rate is the right public policy move but a reduction in the percentage test itself is also needed.”

Yeah, right. And everybody gets a pony.

On Thursday I spent time with a couple who emigrated here (from Cuba) a dozen years ago. Nice people. One kid. Rent in the GTA where he’s an engineer. At 50 years of age, they’ve managed to save about $250,000, which is a true accomplishment after starting with nothing – including no English.

Mars wants to invest this money since they have no pensions. Venus wants a house. “All of our friends say they’re making so much money and that we’re throwing it away on rent. The bank says we can afford a house worth about $750,000.”

Said Garth: buying would erase your savings, give you a half-million mortgage debt, double monthly living costs, impact saving for your kid and in ten years you’d have to sell and hope for enough of a gain – after fees, expenses and elevated monthly costs – to fund retirement. What a gamble. After scratching your way this far, why take the risk?

“But did you hear?” she said. “They just dropped the mortgage rules!”

I give up.


Dr. Moneybags

Whadda nation.

Domestic terrorists shut down the railways, throwing thousands out of work, whacking the economy and the federal government calls for… negotiation. Houses, already unaffordable, escalate in price so the feds… lower mortgage requirements, goosing values. Iran shoots down a passenger plane full of Canadians, and Ottawa is…  silent.

Four in ten families pay no tax as government handouts increase, forcing just 10% of citizens to generate 54% of all revenues. And now yet another province – the one where it costs the most to live – will be taking over half of what successful people earn.

Let’s flip to Vancouver, and a comment from blog dogs calling themselves “Dr. and Mr. Moneybags”. Yes, two of the hated 1%ers that Comrade Horgan & The Dippers wish to turn into proletariat.

That was a nice little surprise that the BC Premier gave us the other day eh? Out of nowhere he decided to raise the top marginal rate from 16.8% to 20.5%. My wife is a doctor (apparently “ultra wealthy” according to the BC finance minister) and we were just getting ready to  put in offers on houses in the next couple of weeks and instantly our available cashflow is reduced by nearly $1,000 a month. This means we now have to adjust our expectations downward by a couple hundred grand. We rent in a nice area for $5k a month currently and are definitely not in the NDP demographic it seems.

Any tips for us “ultra wealthy” people who “need to pay a ‘little bit’ more? I was thinking of deferring my wife’s entire RRSP deduction to the next tax year, suggesting she incorporate and take a salary below $220k (or less), and seriously step back and see what kind of house we can afford in the part of Vancouver where the poor people do NOT live…..or buy in East Van instead where it is cheap but has that doobie smoking anarchist vibe. Also this is retroactive to Jan 1, but was announced today! Is this even legal?

What did BC do?

For the second time in three years tax rates on people at the top of the income scale were rammed higher. A lot. The trip has been from 13% to 20.5% (on top of federal taxes), for an increase of more than half. This means that a little over 40,000 people will be milked for more than $200 million in extra payments. It boosts the top marginal rate in BC to 53.5%, which is the same as Ontario – where it costs less to live and there are no silly second-property and vacant-house taxes in place.

As politicians drift left – pulled that way by voters looking for more government in their lives – the system becomes more and more unequal. The top 10% of Canadians includes everyone earning $96,000 or more. As stated, they pay 54% of all income tax. The other 90% foot the rest – 46%. We give money to people because they have children. We give them more because they get old. We excuse close to half of them from contributing into the system. And while we have a Minister of Middle Class Prosperity, we’re hammering those who make an upper-middle class income of less than a hundred grand.

Since 1982 the number of people in the top ten per cent has risen by 13%, but their tax load has increased by almost 25%. Despite this, governments wallow in red ink. The feds will run a deficit of $28 billion this fiscal year, and incur more debts annually. There is no target time for when taxes will meet expenditures. It’s a formula for even higher taxes in ten future – which should be terrifying a lot of Millennials.

And what of Dr. Moneybags?

Take enough salary from your professional corporation to max the RRSP contribution of $27,230 – and put that into a spousal plan. Dividend the rest. Doc gets to deduct it from her income but hubs gets the money to withdraw at a lower rate, now or later. Consider keeping money invested inside the PC to the allowable limit (before the Morneau tax hit happens) and also mull using it to buy that house.

Future appreciation would be taxed at the capital gains rate (very low for most corps), and you’d live there for free with the exception of a taxable benefit approximating rent. If you open an office in the basement to see patients, much of the financing would be deductible. Of course, Doc could just decide to work part-time, keeping her salary below the top rate threshold, and making the primary care crisis worse. That’s NDP math. Spend billions on doctors, then tax them so much they stop working. Genius.

Media coverage of the BC budget this week referred to people like our blog dogs as alternatively “wealthy” or “rich.” But people in Vancouver earning $250,000 a year are neither. It’s barely enough to qualify for financing a Vancouver Special unrenovated dump. Earning a lot of money doesn’t mean you have instant wealth, high net worth or investible assets. But it does make you a target. In the hands of zealots and power-mongering pols, envy is a lethal weapon.

By the way, have you heard any opposition politician, anywhere, stand up and argue that excessively taxing successful people – like those who spend a decade in school and residency to become doctors, or start companies which employ thousands – is insane? An incentive to leave?

Nope. You haven’t. They leave that for a pathetic blog.

Whadda country.



Sharing it

Four years ago four babes in their 60s and 70s moved in together in Port Perry – rural Ontario. That broke the rules in a municipality where unrelated people are not supposed to co-own and co-inhabit a single-family dwelling.

The gals protested mightily and eventually won the blessing of the provincial human rights office. The local government backed off and the ‘Golden Girls’ became celebs as champions of affordable seniors’ housing. Three years later the Ontario government adopted a private member’s bill preventing discrimination against people who want real estate co-ownership. Bill 69’s short title is The Golden Girls Act. And now it’s law. “Solving Ontario’s housing crisis is going to take new and innovative ideas,” says Steve Clark, the housing minister.

The women – Louise Bardswich, Beverly Brown, Sandy McCully and Martha Casson – are currently the poster hotties on the cover of Ontario’s newly-minted ‘Co-owning a home’ guide  which enthusiastically promotes alternatives to one family-one house.

Meanwhile in BC, co-ownership is hot stuff, especially since huge CU Vancity started offering its weird ‘Mixer Mortgage’ allowing up to six people – not formally related to each other by family or romance – to finance property. There are now realtors specializing in co-ownership, and a breathless new media story appears every few months. The latest features a $1.8 million butt-ugly house which, “may be out of reach for a solo buyer. But it’s already been divided into four suites. If four people or families split the cost, each would be paying $400,000 and $500,000 for a home of their own in one of the city’s most desirable areas.”

The Mixer Mortgage, by the way, can offer multiple owners different loan amounts, varying rates, amortizations and cover a portion of ownership ranging down to 2%. But they all have the one property as security. Buyers can be roomies, buddies, brothers or strangers. Says the company:

“We have the ability to split mortgage terms. For example, if two people or two couples are taking on half a million dollars of debt, and $200,000 is earmarked for one person and $300,000 is earmarked for the other, those people could potentially pick different terms, different rates and different amortizations that are more applicable to them. So, while everyone who owns the property is still responsible for the debt, they can earmark their own debt and pick their own repayment terms.”

In Ontario, by the way, the lenders of choice for co-ownership seem to DUCA credit union and Meridian, whose ‘Family + Friends’ mortgage allows for up to four owners. So far the Big Six banks have eschewed this, but with passage of Bill 69 that could change.

Okay, so you round up four or six people and together buy a property that none of you could ever dream of purchasing individually. You live there and pay the mortgage like rent, then make a tax-free killing as the property escalates in value. What could possibly go wrong?

As it turns out, lots.

Married or common-law owners form economic unions. They bring responsibilities. That’s what family law is all about. Inescapable obligations, whether for whelping or real estate. But unrelated co-owners are, well, unrelated. The BFF you bought a house with could go broke, lose her job, split for Nevada, get married or die. An unrelated owner could simply stop paying their portion of the mortgage, or property tax, utilities, insurance or maintenance. This could potentially trigger a mortgage default, foreclosure, power of sale and misery. It could force a sale of the property, legal bills, an unwelcome move and lost equity. The risks are palpable.

So, don’t even think about co-ownership without (a) understanding everything financial about your potential co-owners. There are no secrets allowed. Net worth, ex-spouses, income, job security, gambling debts, assets, addictions – everything should be on the table. Then, (b) you need a good lawyer and a great partnership agreement. It should set out the space each person occupies, responsibilities, division of expenses and, above all, procedures for dealing with unexpected events. Like job loss. Or (in the case of the Golden Girls) a visit from Mr. Reaper.

The agreement also needs to deal with dispute resolution. There will probably be some. Maybe a lot. And what happens if one person just wants out? Will there be a financial crisis if the remaining owners cannot find a replacement? Remember it’s easy to put a few names on title – and lenders are happy to do that because each person individually could be responsible for 100% of the debt – but it’s hard to make co-ownership smooth and workable.

So, careful. This has the potential to bite you. And it breaks one of the cardinal GreaterFool rules: never buy real estate with someone you don’t sleep with. Pooch excluded.

$     $     $

Well, they did it.

T2 & Chateau Bill have started to dismantle the mortgage stress test in a giant concession to moisters – and about the worst possible thing they could do to affordability.  On Tuesday afternoon the announcement came that the qualifying rate will be dropped by about a third of a point – from 5.19% down to 4.89%, using a new formula.

“This adjustment to the stress test will allow it to be more representative of the mortgage rates offered by lenders and more responsive to market conditions,” says the government. Maybe so – after all, five-year loans are available at less than 2.9%. But what the move means is more borrowing and more price pressure.

Says mortgage broker and blogger Rob McLister:

Will a looser stress test stoke the market? Absolutely.

While it might boost buying power by just 3% or less (depending on what the new benchmark turns out to be, come April 6), the psychological boost will be material. Homebuyersparticularly younger buyersare already worried about prices running away from them, given the double-digit gains of the last 12 months. News of an easier mortgage stress test won’t help.

And just in time for rutting season.

Railway blockade? What railway blockade?



No win

These are transformative days, n’est-ce pas? The biggest generation is into a shared economy – Uber, AirBnB, gig jobs and co-ownership. The hot word is ‘collaborative.’ Rugged individualism is out. Confrontation, too. Those who disagree with the consensus view, whether on climate, taxes or treaty rights, are paleo. Reactionary.

So, I said to Dorothy, whaddya think about me blogging on the railroad blockades?

“Don’t be an idiot,” she said, giving me that don’t-be-an-idiot look. “This isn’t a debate anymore. It’s black-and-white. You’ve got nothing to gain. Drop it.”

She’s right. So I’ll keep this post short. Maybe she won’t notice…

The T2 government has decided not to provoke the few Mohawk band members who have blocked CN’s main line in Ontario, choking off rail service in the eastern half of the country. The railway has laid off 1,000 workers as a result, so a thousand families will be without paycheques for a while. Containers are piling up on the dock in Halifax, and ships have stopped being unloaded. Supplies of everything from foodstocks to chlorine for hospitals, grain, manufactured goods and propane for home heating are halted. The economic losses are estimated to be $60 million to $100 million per week, and mounting.

The minister responsible for indigenous issues travelled to the blockade, legitimizing the civil disobedience there. He came to negotiate and possibly reopen an ancient treaty, to give the protestors some of what they demanded. After nine hours of talks, nothing. In fact details of the meeting were secretly recorded by the Mohawk participants, then released. Things had not gone well. Demands, no compromise. No end to the illegal blockade.

The protestors burned a court injunction that CN received to have them removed. Neither the RCMP nor the provincial police force have acted to uphold the injunction. The Trudeau government indicated it does not support any aggressive action to have the blockades removed, and prefers an open-ended process of exhaustive talks, leading to the possible rewriting of former agreements granting more land and money. The Ontario natives say they won’t move until indigenous lands in BC – where controversy over a gas pipeline rages – are cleansed of “red coats and blue coats.” In other words, no policing by federal or provincial governments.

The issues are complex. Many indigenous people in BC support the oil and gas industry with its superior-paying jobs. Some don’t. But then unanimity within any group is elusive. Usually democracy prevails, unless you believe in hereditary chiefs, accountable to themselves.

In any case, this has become a national crisis. An economic and financial one. Canada’s reputation as a reliable supplier is being tested. People are losing their jobs. Houses in the east will soon go cold, in February. The federal government looks paralyzed and dazed, seized by the political ghosts of Oka and Ipperwash. After Trudeau spent so much personal capital on indigenous issues, there is so little to harvest in return. Not enough good will or trust to deal with a relatively small number of rebels camped on the tracks.

As Dorothy reminded me, this is black-and-white. Supporters have turned it into a climate crusade, seeing the hereditary chiefs – and their Mohawk colleagues – as oppressed defenders of the earth, water and sky standing bravely against a rapacious, resource-hungry, wasteful society. It’s classic left-right warfare. No air in the middle for talk.

The resolution? Concessions or enforcement. The majority must concede, or we send in the cops. Given what the prime minister’s said so far, the outcome is clear. Collaboration.

You may have another word for it.