If you enjoyed the intergenerational eye gouge that went on here yesterday, youâ€™ll love whatâ€™s coming.
This war is primarily between the Boomers, who seem to have everything and fear losing it, and their adult children who, at 37 or 42 or whatever, have more debt than equity and see thereâ€™s no way out. The kids blame their parents for inflated home prices and eternal mortgages. The parents cling to houses now that interest rates have collapsed and the stock market bites.
Nobodyâ€™s net worth is going up, and most people dread the future. Hard to deny whatâ€™s coming â€“ higher rates, higher taxes, higher prices.
Meanwhile the times confound. I mean, look at events of the last day or two:
- The dollar soars to 94 cents despite desperate attempts by the Bank of Canada to quash it. This is the absolute last thing our manufacturing, exporting and tourism sectors (if we still have any) need. By the way, I predicted a dollar at par by the end of the year. Ouch.
- Inflation has turned into deflation. The consumer price index last month was negative 0.8%, about where it sat the month before. This comes despite $1-a-litre gas and that bubblicious real estate market. Face it: with slagging consumer demand prices cannot rise, no matter how cheap you make money or how loudly you insist things are great.
- The poohbahs (Flaherty, Bernanke, Carney) say the recessionâ€™s over. But they also say unemployment has yet to peak. That should happen next year, and it looks like 10%, or maybe 15% when discouraged workers are counted. So, how does that work?
- Despite this, house prices are at an all-time high, and people are paying huge amounts of money for crap. Like this.
I showed you this North Van one-bedroom cottage when it was just an over-priced listing. Now itâ€™s sold. Yeah, full price. Over a million, LTT included. (I am told the land is assessed for $775K and the house for $35K.)
To summarize: Prices fall while real estate values hit an historic high. Unemployment jumps along with personal debt. The economyâ€™s at risk because of an uncompetitive currency. And everybody knows a wave of inflation is coming, based on energy, tax and interest. Family incomes wonâ€™t keep up, since big wage hikes seem years off. House values and mortgage rates have only one direction in which to travel (have you received your LOC letter yet?). And 9,000,000 baby boomers will be cashing in their chips so they can buy cardigans and drool along with Mick Jagger.
Given these realities, I caution you not to be fooled. The next few years could be decidedly unfun. And by the time we have arrived at a new plateau of normalcy (which will not be 3% mortgages, bidding wars or tax cuts), the Boomers will be collecting whatâ€™s left of CPP and their 45-year-old kids will be faced with an interesting dilemma.
Real estate values will be lower, and mortgage rates will be higher. The HST and EI premium will be sucking off new billions and incomes will flatline. Hundreds of thousands of people will be wondering what to do about homes they bought in 2009 and 2010 at the top of the market, while real estate-heavy seniors will be kicking themselves for not bailing out at the peak. As has happened at several interesting moments in recent history, folks will realize a house is a home, not an investment or a retirement plan. Families will live in dread of mortgage renewals.
Health care costs will be skyrocketing as the largest population group queues for new knees, hips, corneas and little blue pills. Governments that fell into deficit in fiscal 2010 will still be there as 2020 approaches. Of course, this is what happens when you export jobs, borrow to pay the bills and totally ignore the reality of an aging population.
So, yeah, the kids are right. It doesnâ€™t get better from here. It gets worse â€“ unless we change some stuff damn quick.
So knock it off.
For Garth's political blog, go here.