Danger

Over the last two days I related two stories. Eddy and Anna. The young over-sexed engineer blurted his negative experience with the true cost of owning a condo (and hot women). The distraught millionairess mama couldn’t handle being priced out of an insane housing market.

I chose the two tales with some care. They tell us about ourselves.

Nothing affects choices like emotion. For property virgins – especially in a world now dominated by social media – the overriding influence is peer pressure. So people like Eddy get sucked in their twenties into the vortex of expense and debt, only to discover buying a condo is one hell of a lot easier (and often cheaper) than getting out. With little or nothing down, fat closing costs and monthlies higher than rent, their only hope is that prices will continue to escalate.

And people like Anna are pushed along by societal forces. You know, that non-stop condescension renters feel, and the quiet censure directed at parents who don’t own houses. Lately, with home prices pushed up by cheap rates and house lust, there’s also a panic that this is a new normal, that values will rise forever and failure to buy into a rising market will bring heartache.

Of course, all booms end. Always badly. The only thing new is that we have to learn it again, every time.

Eddy and Anna represent something darker, though. Call it collective insanity or group greed. Maybe it’s simple ignorance. Or worse, a total messing up of priorities.

As I said yesterday, seven in ten of us have houses. Four in ten have no savings. Three in ten can’t pay their monthly bills. And for the first time in the history of sexy underwear (eternal), almost half of all people retiring (voluntary or otherwise) are saddled with debt.

There’s a direct line leading from home ownership to financial failure. We’ve simply put far too much of our earnings and confidence in the wrong asset. So even at a time when mortgage rates are the lowest ever, people have the most debt. Real estate horniness has turned a giant opportunity (to pay off a mortgage when it’s cheap) into a bottomless trap (we bought big and now owe more, with rates set to rise).

This is the opposite, obviously, of what most people believe.

For them, real estate is wealth. It’s replaced both savings and investments. Worse, its influence has seeped into every corner of life. What else can you say when stunning numbers of your friends and co-workers save nothing during their working years and retire still owing money?

And speaking of retirement (according to a Royal Bank survey), guess what most cash-deprived Canadians think they’ll do to finance their KD and cable? “The most common responses to squeezed finances are to move – to either a smaller place or a rental – or to live more frugally.”

This is one major reason real estate is doomed. There are 9,000,000 Boomers who own an estimated five million pieces of real estate. Far from making them wealthy, many have their entire net worth and life savings trapped in those houses and cottages. Without pensions (70% of us are pensionless) or a big pot of money (40% of us have no savings), what else are they going to do but bail?

The real estate obsession could turn out to be the single worst decision an entire society has made. With Boomers turning 65 (starting next year), with interest rates rising, the economy more volatile, inflation once more raging, taxes swelling and record levels of debt, the bubble’s doomed. And yet people in Toronto think immigration will propel houses higher, in Edmonton it’s the myth of surging oil and in Vancouver because the world wants scenery.

The moral of Eddy and Anna is not that real estate’s bad or destructive. It’s we who embody risk.

Walk outside and look at your neighbour’s house. He’d probably die defending it.

That’s danger.

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