Read the Beforeitsnews.com story here. Advertise at Before It's News here.
Profile image
By Greater Fool (Reporter)
Contributor profile | More stories
Story Views
Now:
Last hour:
Last 24 hours:
Total:

Feeding the beast

% of readers think this story is Fact. Add your two cents.


Along with unveiling its snappy new logo (now being built into the exterior of its snappy new Toronto skyscraper), CIBC’s throwing the covers off our housing market’s nepotistic little helper. Yes, the Bank of Mom.

There are two big takeaways from bank economist Benny Tal’s shocking new report. First, parents are clearly behind rising property values that have created Generation Squeeze. And, second, many oldies are gutting their own retirement plans in the process. Neither of these seem to be elevated social goals. Oh well. Don’t mess with Mom.

So here are the facts: One in three newbie buyers gets his/her down payment from the BoM, and the sum is growing fast. In Toronto it now averages $130,000 and in Vancouver $180,000. Serious money, which has paced (and contributed to) house price growth.

Even more arresting is the surprise that one-in-10 move-up buyers taps parental cash. In the GTA a needy (but wanting) adult offspring collects an average of $200,000 and in YVR it’s a stunning $340,000. Also significant: two-thirds of all first-time kiddo buyers say the Mom money represented “the primary source” of the down payment. In other words, they’re buying houses with virtually no money saved and 100% financing.

So is it a big surprise we have this – Bank of Mom funds chasing swollen house prices? Or are real estate values being pushed higher by wealthier families injecting money into the hands of kids who otherwise would rent, or wait?

Mom cash  & house inflation  feeding each other?

Says Benny: “Given the trend and size of gifting, it is clear that this phenomenon is becoming an important factor impacting housing demand and therefore home prices in Canada. As for the impact of wealth inequality, clearly gifting acts to narrow somewhat the wealth gap between gifting and non-gifting parents. At the same time, however, gifting clearly works to widen the gap between receivers and non-receivers.”

So much for public efforts to make housing more affordable. Mom is making it worse.

But there’s more. The bank also figures the BoM is responsible for at least 10% of all real estate down payments in Canada, with most of the $10 billion coming out of parental savings. That is an astonishing pile of dough, transferred from financial assets, which can support parental retirement, and into a single asset – residential real estate – where it will generate no income and be associated with big leverage in a time of rising interest rates.

Is this making our society and economy even more dependent on a single asset class which is fueled by emotion, hormones, house lust, FOMO and financial illiteracy? Well, maybe. Are wealthier parents helping to inflate real estate to the point where less fortunate families are locked out? Without a doubt. Is our economic dependence on housing a ticking time bomb as the conditions which fueled the recent bloat – pandemic, 2% loans and WFH – eventually fade from view? This is a risk for all. Will it stop? Not a chance.

We reap what we sow.

?     ?     ?

Time for the Investment Question of the Day. And this one comes from Trevor, “a longtime reader (probably going on 8 years now), basically never commented though…”

I’ve got a couple of savings accounts that essentially pay zero interest. One for emergencies (home repairs, job loss) and one for a bi-annual trip back to see family in Asia (which is getting pretty swollen these days). Together I just refer to them as my “emergency fund”. All together it’s around $30k which just seems completely wasteful sitting there basically declining in value (against the backdrop of inflation). I’ve heard about a strategy to just not even have an emergency fund, invest it all and just use a HELOC as your emergency fund. This way I can deploy basically all of my savings into my B&D ETF portfolio and use a relatively low interest HELOC in the case of emergency or whenever we actually can travel again. Is this actually a wise strategy? Are there unforeseen issues with this? How about with the likelihood of rates jumping up and house prices declining?

Well, Trev, Canadians keep an astonishing amount of money sitting as cash in TFSAs, cashable GICs, HISAs and regular chequing/savings accounts which is depreciating daily. Remember that inflation is officially well over 4% now, and no near-cash investment return comes remotely close. In a world like ours, saving is for suckers.

Emergency funds are an anachronism, and a financial-emotional dumpster. When was the last time you had an emergency? Right. Never. Having said that, it’s always wise to have a contingency plan in place, which is why God looked down and she said, “Let there be LOCs.” And, lo, there were.

So set up a personal line of credit at the bank. It does not need to be a secured HELOC, which involves an appraisal and a claim against title. Sure, the rate will be higher for an unsecured line, but anytime you borrow the thing can be paid off with a transfer from your investment accounts. If used for any kind of financial asset purchase, all interest is deductible. The cost of maintaining a line is typically zero. And it’s always sitting there for you to tap into if a wildebeest actually attacks.

You never know.


Source: https://www.greaterfool.ca/2021/10/25/feeding-the-beast/


Before It’s News® is a community of individuals who report on what’s going on around them, from all around the world.

Anyone can join.
Anyone can contribute.
Anyone can become informed about their world.

"United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.

Please Help Support BeforeitsNews by trying our Natural Health Products below!


Order by Phone at 888-809-8385 or online at https://mitocopper.com M - F 9am to 5pm EST

Order by Phone at 866-388-7003 or online at https://www.herbanomic.com M - F 9am to 5pm EST

Order by Phone at 866-388-7003 or online at https://www.herbanomics.com M - F 9am to 5pm EST


Humic & Fulvic Trace Minerals Complex - Nature's most important supplement! Vivid Dreams again!

HNEX HydroNano EXtracellular Water - Improve immune system health and reduce inflammation.

Ultimate Clinical Potency Curcumin - Natural pain relief, reduce inflammation and so much more.

MitoCopper - Bioavailable Copper destroys pathogens and gives you more energy. (See Blood Video)

Oxy Powder - Natural Colon Cleanser!  Cleans out toxic buildup with oxygen!

Nascent Iodine - Promotes detoxification, mental focus and thyroid health.

Smart Meter Cover -  Reduces Smart Meter radiation by 96%! (See Video).

Report abuse

    Comments

    Your Comments
    Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

    MOST RECENT
    Load more ...

    SignUp

    Login

    Newsletter

    Email this story
    Email this story

    If you really want to ban this commenter, please write down the reason:

    If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.