The lottery

LOTTO

194 Euclid Avenue is, of course, butt ugly. But to the old Portuguese couple who have lived there for years, it’s a bela casa. No wonder. Listed for $849,000, it just sold for $1,080,000.

The sawed-off bung in Toronto’s lower west side has 1,700 square feet, a basement suite, garage and two bedrooms. It was for sale for a week and got eight young couples excited enough to start a bidding war. But here’s the thing. A new semi not far away just went for $1.2 million, and a townhouse in the hood changed hands for one Kia less than $1 million. So because this sad, tired, little pile of bricks is detached, it jumped into the seven-figure range.

Here’s a picture, courtesy of Toronto Life mag, which makes this comment, “the home proves that $1 million doesn’t buy what it used to.”

No kidding.

toronto-sale-of-the-week-194-euclid-avenue-intro

About the time I was reflecting on the stupidity of man, a CBC reporter wrote me asking for a comment on the latest report card on Canadian real estate, as seen through the eyes of the federal agency known as CMHC. In case you missed this piece of trickery, let me summarize.

But before I do so, be reminded that CMHC is massively invested in the national property market. In fact without it, houses prices would be a fraction of what they are today. By allowing banks to lend to people who basically have no money, without taking risk, this agency has made cheap mortgage rates available to everyone. No matter if a kid wants 95% financing, or a 60-year-old wants just 20%, they get the same rate. Unlike, say insurance – where a smoker pays more because he’s likely to kick sooner – a penniless virgin borrows at the lowest rate because if she defaults, the government will pay the bank back.

Hence, with almost $600 billion invested in residential real estate it helped to inflate, and enabling most of the high-ratio, high-risk mortgages in the nation, CMHC’s hardly an independent or impartial player.

Having said that, I believed the analysts working there had a modicum of pride. I was wrong.

It’s called the House Price Analysis and Assessment framework, which is the agency’s Big Look at the entire Canadian housing market. Yes, it’s the same market which this pathetic blog has been reporting on almost daily with shocking tedium. You will remember the published numbers – sales reductions in more than 60% of the largest cities, price declines erupting in many, and yet three regions (Toronto, Vancouver and Calgary) where people are on drugs.

Most of the world agrees. The International Monetary Fund thinks we’ve flipped. US housing guru/economist Robert Shiller says we are on the same path that ate the American middle class. Even the big Canadian banks are on record as stating we’ve overvalued houses by about 15%.

Evidence abounds that conditions are unstable. Regional markets that popped wildly a few years ago, like Regina, are in tough shape. The second-biggest market in Canada, Montreal, has seen monthly sales declines. There’s a two-year supply of houses for sale in Halifax. Single-family home sales in Edmonton just fell 12%. All of this is happening even while five-year mortgage rates sink to the lowest point ever, down close to 2.5%.

The reason is clear. Incomes are not rising, and consumers have historic levels of debt, which keep bloating. As I showed last week, we’re adding a net new $10 billion a month in mortgage borrowing, and now a stunning 49% of all sales are going to first-time buyers – CMHC’s cannon fodder. (In the US only 29% of sales are to virgins, down from an historic average of 40%.)

Well, the feds say this: “Housing markets in Canada remain broadly consistent with underlying demographic and economic factors such as employment and interest rates. Nevertheless, a modest amount of overvaluation is observed, meaning that house prices are slightly higher than what the underlying factors would suggest.”

On Vancouver: “Low Risk — The level of home prices in Vancouver is supported by local growth in personal disposable income and long-term population growth.”

On Calgary: “Low Risk — Overvaluation in Calgary reflects the combination of strong growth in house prices and modest gains in personal disposable income.”

On Toronto: “Moderate Risk — Overvaluation in Toronto is due to steady price growth that has not quite been matched by growth in personal disposable income.”

There isn’t much doubt this will further stoke the fire, as it is intended to do. The report will be used by realtors to ‘prove’ that if the markets have any risk, it’s ‘slight’ or ‘modest.’ CHMC, which facilitated the creation of real estate values so extreme they suck off the majority of family cash flow, is now officially sanctioning them.

Meanwhile, at 194 Euclid, the wrinklies won the lotto. At least somebody gets the joke.

Your turn

TURN modified

When I first lost my mind and went to Parliament twenty-six years ago, people bitched about the government. Spending, they said, is out of control.

That year (1988) the feds spent $132 billion running the country, and the national debt was $322 billion. This year Ottawa’s shelling out $279 billion and the national debt is $649 billion. Spending has doubled, but so has the debt. This is not good.

In 1988 there was rampant inflation and mortgages were 12%. People and government struggled. Today there’s almost no inflation and rates are under 3%. We struggle still. Personal debt is historic. The current government has been spending more than it takes in for the last six years. And these are conservatives. This is not good.

Well, according to Joe Owe, our almost-new finance minister, the country will run a small surplus next year (even though almost all the provinces are in deficit). Strangely, 2015 is also an election year. And now Joe is asking Canadians this question: how should we spend the surplus?

In fact, the feds have released a video aimed at high school students posing exactly this query. Here it is:

So, have you ever wondered where all of the money goes when it reaches Ottawa? You should. We are a highly-taxed people, certainly compared to the Yanks. About $26 billion a year is burned up paying interest on the accumulated debt, and the rest is consumed by civil servants, transfers and program spending.

Here is a complete list of that spending for the current fiscal year, by department. You will see, for example, that $18.6 billion is spent on the military, $2 billion on CMHC, $3.8 billion collecting taxes, $2.3 billion on prisons, $1 billion on the CBC, $51.6 billion on employment and social development (mostly transfers to the provinces), $87.6 billion by Joe’s department (including the debt interest), $5.3 billion on foreign affairs, $8 billion on aboriginals, $2.6 billion on the Mounties and $49 million on Enterprise Cape Breton.

That’s just a sampling. Go poke around for yourself.

The point is, this is your money. The MSM never actually tells you where it goes. Nor does your MP. Instead, each time a budget is released reporters focus on the goodies dispensed or any new personal taxes to be imposed – because that’s the spin they’re given.

Few people end up knowing the national debt has doubled or that the current government recently ran the worst deficit in national history, spending $55 billion more in one year than was collected. Yes, it’s Keynesian economics at work (spend more in the bad years), but let’s go back to Joe’s question: what do we do now? If the economy is limping ahead, taxes are rising and we may have a small surplus, what’s to be done with it? Spend it, or cut tax with it, or use it to reduce debt?

This is what he’s asking the students to do, without providing them a summary of current spending. Joes says he will seriously consider their feedback. Go figure.

And now I’m asking you. The surplus next year will be $1.9 billion, or 0.68% of the budget. It would have been a lot more, but the government just announced an income-splitting program for middle-class couples and $60 more monthly for child care. There is no provision for debt repayment.

Did I mention there’s an election next year?

Well, I know Joe. And if the students get to say something, we probably should, too. Give me your thoughts. I’ll pass them on.

By the way, back in 1988 I produced a worksheet for citizens listing all the federal spending, providing them a chance to design their own budget. Over a hundred MPs adopted it, and mailed it to their constituents. Finance minister Mike Wilson ended up with about a million of them, and never looked at me the same way again.

He decided we needed the GST. Oops.