Remember how you felt around February of 2009? The economy was falling apart. Stocks diving. Real estate frozen. Jobs vanishing. A few weeks later – on March 9th – financial markets hit rock bottom. And on that day, massive numbers of investors threw in the towel, and sold off their equity mutual funds. The herd could not have chosen a worst moment.
When it comes to making dumbass financial decisions, human nature is our little friend. We buy what’s going up. Then we sell it on the way down. We want what everybody else wants, no matter the price. We shun the unpopular, no matter how cheap. We vacillate between greed and fear. We heed gossip and ignore news. Usually we fail.
Let me remind you of a few things. Then it’s off to Regina.
The crisis is not over. It’s not even in remission. You should prepare.
Evidence is all around us, of course. Greece was downgraded again this week, and its bonds are now junk. The country is said to have a 50% chance of defaulting. Next stops, Italy and Spain. The US economy is running out of gas, evidenced by the latest dismal jobs and manufacturing numbers.
American real estate is a big drag on everything. House prices have now fallen more (33%) than they did during the Great Depression (31%). In both periods, people who bought during a brief recovery – before the second leg down – got creamed. Worth remembering.
Stocks have tanked again, but bonds soared as investors looked for places to hide. In Ottawa the Parliament Budget Officer now says it will be 2016 before unemployment gets back to the levels of 2007 – pre-recession. And a new study found that Canadians have turned into loan hogs again. Household debt levels soared 4.5% in the first 90 days of this year, making liars out of economists who’d claimed we were paying it off.
And, of course, housing sales are falling in most markets at the same time prices rise – making real estate more unaffordable, leading to even lower sales, which will eventually tank values. And this happens just after we hit the highest home ownership level ever, with the most acute level of mortgage financing, thanks to historic prices.
In summary: did anybody learn anything from the crisis?
Apparently not. We’re still buying high, getting our news from HGTV, hooked on debt and yet living in a world teeming with risk. How dumb is that?
As I’ve told you before, while seven in ten of us own houses, three in ten don’t make enough to pay monthly bills, four in ten have no savings and almost eight in ten have no pensions. The vast majority of Canadians have chosen to borrow to acquire illiquid and costly houses instead of pay off debt, diversify and stay liquid and nimble – which is what we all vowed to do back in the winter of 08-9. Regrets come next.
I don’t expect a crash, but I do expect a lot of surprised people. Even in Regina. Maybe especially in Regina.
“I agree 100% about what you are saying about the potential crash in the housing market due to higher interest rates and retiring baby boomers, but it seems in Saskatchewan there is an endless supply of jobs and no-one to fill the void. Saskatchewan is the one true are of Canada right now where there is a boat load of money. For instance, I just graduated from University with a petroleum engineering degree and my wife just graduated from nursing school and we both had about 5 different job offers. I excepted (sic) a job working in SE Sask for as a consultant and my wife took a local nursing position. My wife will make about 70,000 this year and I stand to make about 160,000, so obviously there is a lot of money around here right now. With that being said, the housing market has soured in the last 5 years, and we are wondering when a good time to buy would be. I agree that a housing market correction is coming to most of the nation, I just dont know if it will affect Regina. We are wanting to buy a house now that we are done our education, but Im not sure if its a good idea. Do you have any views on the situation in Saskatchewan?”
Of course I do. But you won’t like them.
Saskatchewan is rich in commodities and has been riding a resource boom for several years. Real estate values milked it, and bloated. Then they stalled as average house prices in Regina and Saskatoon vaulted past the ability of people to buy them (not everybody pulls down 160K after finishing school).
Sales have been falling in Regina on a YoY basis now for months (down another 9% in April), but the average price keeps rising. A bigger problem is people. Regina has a scant 180,000 citizens, and the population growth over the last 10 years has been almost zero. Meanwhile the weather hasn’t been getting any better, which just about guarantees those Mainland Chinese and their bags of money won’t be invading the prairies. Oh, and did I mention what may happen to commodity prices should a new global recession ensue?
So, Marcel, why would buying a house in an over-valued tertiary market, in an uncertain economy during a fragile time be the first investment you make? And one which will probably mean borrowing huge?
Ah, because it’s different in Regina. I see.
Cue the lemmings. I’m done here.