Entries from August 2011 ↓

Part of the fun involved in publishing this blog is opening my fan mail. It’s like being a rock star and having women in the audience throw their underwear at you. (I hate when that happens on the subway.) Hey, another joyful little note just arrived:

“Geez garth, did you not say on several handred occasions that RE will crash and intereset rates have only one way to go,,,,
Should have listened to the sheeple and bought here in Vancouver 2 years instead of listening to a genius asshole like you just find myself priced out forever.
Don’t you ever get tired of being wrong all the time?”

Apparently not. Here I go again.

A theme of this questionable blog has been human nature. People in Vancouver are horny to buy houses because everyone else is, too. That makes prices go up and gives Global something to put on the news. Folks buy stuff that goes up. They also run screaming from things in decline, which pretty much describes the reaction to stock markets this month. On days when the Dow or the TSX crashes by 400 points, investors are overwhelmed with the urge to bail, even when they know this will turn a paper loss into a real one.

Why do we do this? Because we have the attention span and financial memory of algae. We fear stuff losing value will go to zero, and believe assets on the rise will ascend without end. The fact this has never actually happened is moot. We’re human. We emote. If it doesn’t work out, we attribute blame.

There is no doubt Canadian real estate values will correct in those centres where this is not already happening. That list is growing shorter. A year or two ago it was unthinkable that Kelowna or Victoria would see listings sit for months and values wither. Six months ago who could have imagined an average detached home in 416 would lose $123,000 in a month? And the big shoe to drop – at least in terms of drama and emotional catharsis – is Vancouver. That’s coming. Hell, even the banks are preparing us.

Yesterday’s Royal Bank affordability survey is a classic.

Here’s the story: the bank calculates how much of a family’s income it takes these days to own and carry a home. That number for a detached home, it says, is 49.3%. This sounds disturbingly high to me – spending half a family’s cash flow to carry a house when mortgage rates are near the lowest point in history. The bank calls it normal. But how is that sustainable?

It gets worse. This number is based on buying a house with a 25% down payment. That’s three times higher than the average of just 7% these days. The carrying cost also doesn’t factor in the lost earning potential of the equity in the home, which skews it downward. But most upsetting, the bank’s 49.3% is expressed in terms of pre-tax income. Huh? All of our homeowning costs are in after-tax dollars, so why the misleading math?

Given that most middle-class people lose a third of their income to taxation, this must mean  owning and carrying a detached house with a mortgage worth three-quarters of its value actually takes 64% of a family’s take-home pay. No wonder half of all households have no savings or investments, four in ten run out of money before they run out of month and the average BC family – with the greatest real estate net worth – has a negative savings rate.

In fact, speaking of Vancouver, RBC figures (even with 25% down) that the average family must fork over 92.5% of pre-tax income to own a bungalow. The average household income in that city is $83,113. And 92.5% of that is $76,879. Of course, if you earn $83,113 in BC, you bring home only $64,128 which tells us the average family is nowhere near being able to own the average house.

This is why the market is doomed. There are not enough planeloads of rich Asians landing at YVR to save this sucker. The economics of the market do not work, even when everybody has pasty people living in a moldy basement suite and a meth lab in the garage. The outcome is obvious and inevitable. Worse, the new fiction that mortgage rates will stay low for the next two years may actually encourage more borrowing, more buying and more excess.

Were emotion not blinding folks, they’d see the monster they’ve created. But all they sense now is desire. Lust maybe. Greed for sure.

Oh yeah, and an urge to pummel me. But sadly, no undies.

His father, Bob Layton, the chairman of Mulroney’s giant caucus, was always vaguely appalled at his activist son, Jack. Then a rabble rousing, rumpled, bike-riding Toronto alderman, the younger Layton seemed the antithesis of his upright, polished, commanding and very Conservative old man. Bob and I spoke a few times about the interesting way families evolve.

What I learned later of course, is how similar they were. Both intensely worried for the world in which they lived, devoted to a vision of public service and with an indomitable desire to make every day of their excellent adventure count.

After serving in Ottawa, Bob retired and showed up at a couple of investment lectures I gave years later across the country. Still with that military bearing and aura. I was truly saddened when he succumbed to prostate cancer. Ironically, when I did return to Parliament, there was Jack, now suited, articulate and persuasive. Sure, the NDP was easy to dismiss as a collection of ne’er-do-well social zealots with bad haircuts and the cause-du-jour badges on their lapels, but Jack was different. He had the patina of credibility, and a twinkling something in his eye which kept him more than interesting. We spent worthwhile hours together. Me a Tory. Him a socialist.

In this last campaign, as we know, Jack emerged as the one leader still interesting. Harper was evasive and lazy, Ignatieff pedantic and painful and Duceppe an anachronistic dinosaur. But there was Jack, smiling and confident, respectfully presenting questionable policies and waving that crutch in the air like the torch of freedom and flame of hope.

His party’s showing was a stunner. Suddenly Jack was moving into Stornaway, and mere breaths and years away from running the country – at least in the minds of the millions of new converts his sunny optimism attracted. As we realize, it was not policy or organization, money nor backroom boys which got him there. Just Jack. Undaunted by staring up at mighty political machines arrayed against him. Undeterred by his unformed, ill-equipped mob army. Resolute in the face of a bout with cancer and a busted hip that would have kept any of the other three leaders at home feeling sorry for themselves.

His win was the triumph of passion over reason, persona over power.

It’s rare such a person emerges from the bland middleness of this country.

Nothing gold can stay.