Confidence (2)

They look like the poster couple for GenX uber-accomplishment. Thirtysomething, two kids, house in the burbs, new rides, professional jobs, masters degrees and a fresh reno.

Poised and assured, they started to describe their lives to me, peeling back the layers of the financial onion to reveal another story. No pensions, eighty grand in equity in a house losing value and not quite enough savings to buy a Volkswagen Passat.

You’re in trouble, I said. Which they are. Two hundred thousand for college expenses in 15 years, then a million or so another 15 years after that to finance pensionless retirements of maybe three decades. How the hell are you going to go from twenty-five thousand in savings, I asked, to amass that capital, when you’ve done precious little to date?

Shock etched their faces. “Compared to our peer group,” she said, “we’re doing great. Everybody at work wanders around moaning about credit card bills they can’t pay. We thought we had it all together.”

And maybe she’s right. Stacked against other couples of the same age and making the same money ($180K a year), these guys may be angelic. But they’re still screwed. And why? The usual – student debt, fifty grand for the wedding and honeymoon, two kids, new cars and, above all, a house. Man, it all adds up. It eats money. How are you possibly supposed to find cash to invest?

I thought of them when I saw the day’s news.

For the first time anyone seems able to remember, the Canadian economy is about to be kneecapped by the housing market. Stat Can’s leading economic indicator index shrank like manhood in cold water, thanks to the incredible drag now being exerted by real estate. Housing sales are plunging at the worst possible moment – when the US economy is rapidly softening and employers are once again shedding jobs.

It means less construction and renos, of course, as well as lousy days ahead for The Brick and Best Buy. According to BMO economist Sal Guatieri, “Those are two areas we need to focus on going forward — that Canada’s housing market will cool too rapidly because too much demand was pulled forward into earlier this year, and we have to focus on the U.S. situation because there is a higher-than-normal risk of a recession… Consumer spending is cooling down as households focus on debt repayment or try to rebuild their savings rates.”

So, less real estate activity and a weakening economy. That fits my model for lower housing values this year and next, and a protracted period of melt after that. Not exactly the news you need if you have the bulk of your net worth in one asset at one address on one street – and a looming financial deadline or two. It can put a few dints in your confidence.

Which, by the way, is vanishing even in some of the most robust, fabled and expensive housing markets to the south.

Last month in San Francisco, real estate sales hit the lowest level in 15 years, down almost 20% from June and off a quarter from July of last year. And this is a city where the average house price is very close to that of Toronto’s – over $400K.

Yesterday the chief economist of the National Association of Realtors warned of plunging confidence levels and the damage it poses for the economy. But it’s probably already too late. A new Zillow report says 30% of US homeowners think the market has yet to hit bottom and another third think the worst is yet to come. A survey from Trulia discovered fewer renters plan on buying, and most people no longer think owning a home is a part of the American dream.

What does this mean?

Simple. House deflation. Coming to Toronto and Vancouver just as assuredly as it has arrived in SanFran. It means all those who drank the real estate Kool-Aid need a new plan. Fast.

On this topic, it’s my intention to lay out this plan at a few speaking events over the coming weeks, in places such as Saskatoon, Vancouver and Kelowna. I was planning the same in Toronto at the November Property Show.

A few days ago, as I told you, I was invited to be a featured speaker at the event by the organizers, who are showcasing a number of speakers from the Real Estate Investment Network. Yesterday I was uninvited.

This letter arrived from promoter Kelly Lanteigne:

“It was brought to my attention one of your comments on your web blog:

‘But, like I said, I’m a lousy liar. I couldn’t even say no this week when asked to speak at a big real estate investment show in Toronto on November 13th. I should have. I’m sharing a stage with Don Campbell, chief pumper for the cult called REIN.’

“We at Event Syndications Canada Inc. Would never try to hold someone to do something that they felt they should have said no even though they may be a lousy liar or have already signed a contract. Therefore we would like to relieve you of your speaking arrangements.”

If you go, you now know what to expect.