Residential real estate’s a commodity now. And nobody seems happy about it. The serious lack of listings, principally responsible for ridiculous prices in most major cities – as well as bidding wars and financial suicide in the GTA – seems destined to squeeze home values higher this Spring, even if sales plunge.
The winners are those with houses and windfall equity. But they’re not capitalizing because they’re not selling – afraid of where to move. The losers are those priced out of the hot markets and unable to reconcile waiting. The wretched are the ones staggering from auction to blind auction, making rash offers on crap houses, only to be bested by a greater fool.
Bankers know we have a debt crisis looming and are battening the hatches. Politicians understand the economic danger, but can’t find the courage to act. Now households owe $2 trillion, an amount bigger than the whole economy. Ninety per cent of houses in Vancouver are assessed for more than seven figures. The average detached in 905 is a million. And yet nobody’s at peace. This is an indication of significant social upheaval ahead.
Today I present two letters received Monday. One ‘s from a young medical professional and 1%er. The other was penned by a dude I banned from this blog last week. First the doc:
“Dear Garth: Should we get out? Is this the peak of the bubble? We purchased our Toronto home in 2009 for $540,000. We have spent approximately $100,000 in renos over the years. The house is now worth $1 million and paid off.
“I am an anesthesiologist earning approximately $600,000 per year but I took 5 months off in 2016 for a maternity leave. I’ll be taking another maternity leave for 6 months beginning in April of this year as our second child is due.
“My husband has given up his full time job to take care of our children. He previously earned about $100,000 per year. He has been working part time from home at his own small business earning $35,000 per year net profit. We have saved and invested since I started working in 2013. I have a medical corporation where I invest my retained earnings (in a balanced, diversified, low cost portfolio as per your guidance). It has a current value of $1.3 million. We have another $200,000 invested similarly across our RRSPs and TFSAs.
“I am 34 years old and my husband is 36. Does it make sense for us to sell our primary residence and rent until the market cools off? We could rent a comparable home in a better neighborhood for less than $4000 per month. But I can feel the looks of disgust from our parents about being renters.
“We do love our current home, it’s big enough for our family and renovated to our taste. There is also the hassle factor of moving with 2 small children. We would hope to purchase our dream home in the future. Currently knockdowns in our target area are on the market for $2 million. Re-builds are going for $3.5 million. This seems unobtainable now and we are worried about never being able to afford our dream home.”
Seriously? You’re 34 with a net worth of $2.5 million, a $600,000 income, living in a house you fancy, with no debt and a four-year work history. Plus another infant coming. Have you been bringing home the Diazepam and Amytal for recreational use? You’re losing it, girl.
Selling your million-dollar to buy one that costs three-and-a-half times as much at a time when the market is insane, interest rates are starting a long-term ascent, political real estate action is certain and prices have apexed is nuts. You will pour that precious liquid wealth into a single asset at the worst time possible, tossing out balance and diversification. And if you sell and rent, your mom will never talk to you, since obviously you’ll be a social failure and family disappointment. Stay where you are, doc. And keep your head down.
Now for Ron, the banned and banished reprobate:
“Below is a solution to one of Canada’s biggest problems, Garth. You probably won’t like it.
“Given that the national average house price is so extreme if one applies the 3 years pay rule one would need a minimum wage of around $80 per hour and full employment. Workers would be fired en masse in a heartbeat. Employers cannot afford the luxury of paying their employees to live in Canada.
“The solution is to regulate home prices by capping residential properties to 3 years pay or less at minimum wage everywhere in Canada.
“The dissenters and the disobedient could be charged with genocide under article 2 sections c&d of the genocide convention. Those who co-operate with home price abatement could receive mercy and have their debt expunged by fiat. Real estate must go from being an investment to being a place to live for anyone with a job.
“Don’t worry about the rich and the elite employees who pose as the average Canadian, Garth. They will always be able to look after number one. The common good needs to be protected from the genocidal greed of those who speculate in the necessities of life and that is a job for government. If people are no longer being financially bled white by real estate they may have funds for other things that are socially and economically beneficial.”
A lunatic position, of course. But somewhere between the craving, needy doctor and the raving, seedy blogger, sits the vast sea of public opinion. Like I said, nobody’s happy about this real estate market, which has turned houses into futures contracts, burdened families with debt that will crush without constant market advances, legitimized greed and envy, widened the wealth chasm and fueled a war between moister and Boomer, native and newcomer.
These are dangerous days. Stay liquid. Tackle debt. Expect surprises.
Yes, Ron. You’re still banned. Avoid surgery.