Gravity

Time for a little year-end reality check, here on GreaterFool – where we have a surfeit of 1%ers surrounded by hungry, huddled, masses with their Whole Foods bags and selfie sticks, yearning to eat them. We also have Kory and Leanne. There but for the grace of God, go we.

“Got caught in the last round of layoffs at Telus,” he says.  “Could have been a bad situation.  Been reading your blog for around five years now, so we are well prepared.  If we were a typical Canadian family I don’t know how we’d survive the stress. As it is, we’re liquid, diversified, pay $1650/mo for a three story townhouse in downtown Calgary (my brother and his wife live with us and cover $700 of that).  Otherwise the only other thing we’re on the hook for is one year left on a Hyundai @350/mo. We went and splurged instead of one of those rotten Kias!”

Yes, they still have a modicum of taste.

“Anyways, instead of being caught up in the fear, we quickly settled our affairs (I took my lump sum in 2016), and we bought tickets to Mexico for two months. Not sure how 2016 will unfold but I think it might be best to pack up and head down to the US for a bit on the TN visa program.  My wife is an RN, and I work in computer network engineering.  I looked at the wages in several areas and if our luck holds out, we can both earn around the $100k region…easily $250k CDN per year with current exchange rates. But we are doing very well thanks in part to your advice, and no declining house!”

They also have freedom, flexibility and mobility. It’s a lesson a lot of people in Cowtown, Edmonton, Grand Prairie, Fort Mac, Saskatoon and Regina are learning. For example, there are about 5,000 houses for sale in Calgary today, and just over 800 monthly sales. And while that might suggest a buyer has to endure six months to sell (as opposed to the 49 days the realtors suggest), the wait for higher-end properties can be even longer.

Tough to put your life on hold for months just to try and figure out what comes next. But a renter can move in a relative flash. No realtor. No listing. No open houses. No vultching buyers. No commission or mortgage discharge penalty. You just split.

This is one of the first rules the huddled masses need to learn: real estate can be an anchor. Nobody needs to own a house to live in a home. When you strip away the emotional baggage (that nesting instinct, the visceral desire to have a cave of your own), it makes little sense to own in a major Canadian city. Especially now. The days of windfall gains are over, and only varying degrees of risk lie ahead.

Besides, from a cash flow standpoint, renting beats owning ten times out of ten. Only a year or two ago this blog was punctuated by comments from cowboys who decried Calgary rents and claimed it was cheaper to own. Well, with prices dropping and buyers evaporating, all those myths have been blown up. Imagine losing your gig at Telus and driving home to a $400,000 mortgage and property tax bill in a town where jobs are rarer than people admitting they voted NDP. #sucks.

Of course, every property market is local. Oil down at $36 suggests in all of Alberta and Saskatchewan things are about to get worse in 2016. But even in BC’s Delusia or the Kingdom of 416, where the metrosexuals herd, the new year will bring some serious real estate challenges. For most people, it’s all about debt.

 Top Canadian money managers were just asked what most keeps them up at night. Sixty-three per cent said the same thing – household debt. No wonder. Mortgage borrowing alone has hit a new peak of $1.23 trillion (that’s 1,230 times a billion). We have another $700 billion in lines of credit and personal loans. The serious part of this debt orgy is that most of it’s been taken out when interest rates were at historic lows and the world’s biggest economy had a zero-rate policy.

No longer. That ended on December 16th. And while the Canadian economy may be too weak for our central bank to follow suit immediately, that alone should worry you. The longer rates stay low, the greater the stress over job loss. So, back to Leanne and Kory.

Canada’s rock star money managers vex more about debt than falling house prices – although those will inevitably, inexorably come. Because Canadians have (apparently) no self-discipline when it comes to snorfling borrowed money, any downturn – whether from higher rates, less work, the commodity price mess or an earthquake in the Lower Mainland – will be neither shallow nor short. Mortgage debt is decades long. The rash, irresponsible borrowing decisions that millions of us have taken recently will be around to haunt the next generation.

So, what’s the No. 1 new year’s resolution for Canadians (at least according to a major bank)?

Yep, paying down debt. But don’t get too excited. That was picked by just 26% of folks in a recent CIBC poll. A close second was “keeping up with bills/getting by.” The third major selection was “don’t have a financial priority.” Sigh.

In 2016 this blog resolves to be less cheerful.