Seventy per cent of us own homes. Mortgage debt’s gruesome. Affordability sucks. So most families save nothing. Never have we gambled so much on houses. And has any politician talked about real estate yet?
Of course not. Tax credits for piano lessons, money for tuition, cheaper credit cards and an add-on to the CPP – all interesting, but basically irrelevant. A week into this federal election campaign we just don’t know where the parties stand on, say, banks giving mortgages to people with no money, CMHC’s unfunded liability, zero-down financing, taxpayer-subsidized real estate speculation, wall-to-wall debt, spiraling property and land transfer taxes or how anyone justifies a SFH price of $1 million in a city where families make $83,000.
In fact, real estate stuff – while at the very core of middle class finances – leaves most elected people flummoxed. In the Spring of 2008, still an MP, I published the book this blog is named after and tried to warn my colleagues that real estate speculation could help lead us into a financial mess. They didn’t care. That autumn, the bug hit the windshield. Right in the middle of an election campaign stocks markets tanked, fear exploded, jobs vanished and nobody could sell a house.
Today there’s a good case for believing risk is higher. Few of the reasons the world came to the brink of depression have been addressed. Governments owe far more. Most families have borrowed their brains out, while putting less in their RRSPs and more into paving stones and drywall. The Home Reno Tax Credit, all on its own, was responsible for adding billions to personal lines of credit, as people did all they could to spend $10,000 so they could ‘save’ $1,500. Argh.
Meanwhile, there’s a new war in Arabia, melting nukes in Japan, near-depression in America and too many people here tell pollsters when it comes to retirement, they’re probably screwed.
And the government party offers a $75 tax credit for art classes.
Ah well. In the last election the guy who won said there would be no deficit in Canada. And we bought it. Deja vu all over again.
But here’s one post-election result it looks like you can count on – an interest rate increase on May 31st. Given blog dog Mark Carney’s recent comments about leaping commodity prices along with his ceaseless warnings about our ongoing debt fetish, it’s almost certain. Carney has the numbers showing how real estate has completely messed up family balance sheets. Only by turning off the taps of cheap credit can he hope to do something about it.
And this will come on the heels of what’s turned out to be a crappy Spring real estate market in most parts of the country. In Toronto, March sales (they’ll be announced next week) are running below last year’s levels, making this the tenth consecutive month of YoY sales declines. As far as I know, that hasn’t happened for 18 years.
Sales are also brutal in the Okanagan Valley, prime Ontario cottage country, Edmonton, great swaths of the GTA and most of the Lower Mainland outside of nutty Richmond and volcanic Vancouver. In short, there are more markets in decline right now than ascending. And how could it be otherwise? People simply don’t have more money to spend – they just have a capacity for debt. As I’ve said before, were it not for cheap rates and government stimulus, we’d be back swapping squirrel muffin recipes. And, of course, both of those will end.
How horny has real estate made us? I whisk you to Victoria, where anguished dad Ted writes:
My son and his fiancée are in desperate need of advice. He – a PHD candidate, she – a nurse. He – no income except for education covered the most part by bursaries/scholarships. She has a pretty good salary.
Problem – she came into the relationship with a condo in suburban Vancouver – lined up for granite/stainless and the like. Prices are on the way down, so they listed and can sell for a 20k loss owned to the bank due to the decrease in mortgage rates over the years. They rent a townhouse in Surrey and have the condo rented – not sure if it’s at a loss or not. She doesn’t want to take the 20k hit so they are now talking about buying another place at a lower cost in order to not have to pay the 20k – madness, but she seems determined. My son doesn’t have the time/strength to argue.
I’ve been reading your blog for a few years and agree with wholeheartedly with your views – I already see the ugliness in Victoria where I live. The question – can you give them some advice?
But there is none, Ted. Like my MP colleagues three years ago as the financial fires licked at their asses, most people pay no heed. They’re deniers. They believe what exists now will carry on forever, without end or consequence. They’ll argue rates can’t rise, credit won’t tighten and trouble visits only dumb Americans.
So I’m giving up. No more wagging finger. No sermons. No mocking of the idiots among us. There are just too damn many.
If political leaders don’t care about the sacrificial property virgins, house-locked Boomers, a debt-devastated economy or looming retirement crisis, why should I?
Damn, I miss the Rhinos.