Entries from October 2013 ↓

Pooched

Pooched

Time for a little real estate porn. Just to relieve stress and check for hormones. But the salacious bits below are not intended merely to stimulate your spouse. There’s a lesson here, as well. Two of them, actually. Maybe three.

First, it’s more evidence of a melt from the top in residential real estate. Forget all those pumping little media releases from Re/Max and Royal LePage about a boom in luxury properties. It’s a myth. Sales and prices of digs listed for two million or more are eroding monthly.

For slummy places between a million and $1.5, F’s decision to punt mortgage insurance made all the difference between 2012 and 2013 sales. If you thought only millionaires bought million-dollar houses, eschewing financing, you’re dead wrong. I told you a year ago about a young lawyer who bought a skinny, faux baronial mansion in Toronto’s monument to the Stepford Wives (Leaside) for $1.44 million, and put just 5% down. Today it would take $290,000 in cash (plus another $49,800 in land transfer tax) to swing the same deal.

Beyond that, rich people are usually smart enough to avoid owning declining assets, especially in an economy like this which is losing juice fast. Luxury properties are sinkholes for money and if they’re no longer turning out capital gains to compete with equity markets, they get deumped.

Second, the property below says a lot about Victoria, none of it good.

Third, here’s another example of how some realtors routinely try to deceive buyers by hiding key information such as the length of time a property has been on the market, plus its price history. This listing, “Ardmore Hall” is currently being promoted by Bruce Hatter and Shane King, who tell prospects it was listed on June 6, 2013. But that’s not exactly true, since it first hit the Victoria market in January of 2011. That’s right – almost three years ago.

And the price? Hatter and Shane have it listed for $5.888 million (guess who that’s meant to appeal to?), which is a discount from what they state was the ‘Original Price’ of $6.188 million. What the pair don’t share, however, is the price two winters ago: $13.5 million. “If you ever doubted the rich in Victoria are hurting, then now is the ultimate proof,” reports one of our local blog dogs. “More than two years later and still trying sell at a 50% haircut. Talk about a major ouch!”

Anyway, here’s what you get, including a $39,000 annual property tax bill:

“Ardmore Hall is a gracious beautifully appointed west facing waterfront M. Knight constructed residence, situated on 2 acres representing the finest in world class properties. Upon entering the gates you will marvel at this picturesque estate. 9400 square foot principal residence of superb craftsmanship and finishing, with intricate tiling, chandeliers, silk wallpaper, copper ceilings, state of the art pool with pool house and a restored original guest cottage, are only a few of the spectacular highlights to make this exceptional property capture your hearts. The entire property includes 6 bedrooms, 11 bathrooms, & 8 fireplaces. The main floor principal rooms all open to the expansive ocean side patios.”

There are 344,000 people in Victoria and 320 properties for sale in excess of a million – a ratio of .09. In the GTA the ratio is .048, or just half of the delusional BC city. In Vancouver, it’s a stunning .145 – three times that of Toronto.

Meanwhile family incomes in both Vancouver and Victoria average just 80% of that in the GTA. This leads to the inescapable conclusion that BC homeowners trying to unload thousands and thousands of million-plus houses are, to use a technical term, pooched.

This is the end of an age.

But enough words.

Turn down the lights, put the KY in the microwave, and enjoy…

A1

A2

A3

A4

A5

A6

A7

Why we suck

Mike

Every time a bank wants to scare the crap out of you, or somebody has a new financial book to flog, they use a poll. Because it works. The sexiest topic is retirement, because most people are seriously screwed.

What they don’t understand is how easily this can be fixed.

So, the latest poll came out Wednesday and reveals that 75% of Canadians don’t think they’re saving enough to retire. Ever. That sounds about right. The mistakes people are making are epic.

First, more money sits in GICs and savings accounts than in all other investments combined. The Royal Bank alone has $180 billion in personal deposits, most of it earning south of 2%. Obviously this is an insane place to put money. The current inflation rate is 1.1% and all interest (outside of registered accounts) is taxable. So forget trying to grow money that way. Unless you make and save huge amounts of money, or start when you’re four, GICs are retirement-toxic.

Why do the banks push these hard? Simple. If you’re dumb enough to hand over $50,000 for five years in return for a weasely 1.7%, the bankers are happy to take it, then lend the cash out as a five-year mortgage (amortized) for 3.69% to finance some hipster’s inflated condo. It’s a win-win for them, a lose-lose for you. Why? Not only is the return hugely inadequate, but you have to pay tax every year at the same rate as your work income, on interest you haven’t received yet. That sucks.

But billions sit there, molding. Some people buy GICs because they were talked into it by TNL@TB and secretly lust after her. Others have the financial acumen of a poodle. Still others live in fear of losing money when they should really fear running out of it. Whatever. It’s a bad choice.

Second, it seems most of us are completely mangling the TFSA. The latest numbers show about half (47%) of all Canadians have opened a tax-free account. Good. But of those, 41% have put nothing in, which is sort of like collecting condoms. That means only 19% of people have money in a TFSA, which is appalling, since two spouses now qualify to sock away $51,000, a number which swells by $11,000 in another two months.

But it gets worse. BeeMo research found 80% of the TFSAs that this 19% of people actually use are sitting in cash assets. That’s right – those hideous GICs or “high-interest” savings accounts, yielding 1.5% or (if you use some wacky, desperate credit union) 2%. Another losing strategy. TFSAs are for investing, not saving.

Third, not only have RRSP contributions dropped off into a black hole since 2008, but the number of Canadians who don’t understand them is legion. For the record, RRSPs are not products. You don’t buy them. They’re not things. A registered retirement pension plan is merely a vehicle into which you place assets, where they’ll grow without triggering tax while providing you with some immediate tax relief. Never, ever populate an RRSP with the low-hormone stuff mentioned above.

By the way, the money you put into RRSPs becomes taxable once again. Don’t forget that. It must come out as income, taxed at your marginal rate in the year you take it. So best to use this as a way of shifting tax from a year when you’re working to one when you’re not (back to school, job loss, sabbatical, pregnant or retired). If you and your squeeze have differing incomes, then use a spousal plan to split income. The one earning more directs all contributions to the spouse and takes the deduction from taxable income. The one earning less can retrieve the money three years later at a lower rate. It’s perfect for financing a mat leave.

Fourth, mutual funds. These are the 8-track cassette players of the financial world. Most have dubious performance records, but they’re stars when it comes to fees. The typical equity mutual fund can easily ding you for 2% or 2.5% a year in management fees, which are not tax-deductible, boosting the real cost well beyond 3%. Why would you pay that when there are ETFs available with embedded fees 90% lower, while providing more liquidity because they trade on the market?

Worse, mutual funds have spawned tens of thousands of financial ‘advisors’ who are really salesguys in drag. They’re all about front-end loads, management expense ratios, trailer fees and deferred sales charges in effect for up to seven years – sentencing you to mutual fund prison. The salesguy makes money every year. The fund company makes money. The fund manager makes big money. And investors pay for it all.

So, there you go. Some reasons why most people are failing financially, and why it will continue. Of course, let’s not forget that 70% own real estate, so they think they don’t need a retirement plan. Especially nine million wrinklies – house-rich and cash poor.

Guess how that’ll turn out?