Mommy-to-Market

ASSHOLE modified

Around this confused planet, people look at horny little Canada and shake their heads. The World Bank thinks we’re nuts. So does the International Monetary Fund. And The Economist, and US ratings agencies Fitch, Moody’s and S&P. Private and government-agency economists look at two or three ratios, and flip out.

But they have yet to discover the scariest numbers of all.

The standard measures of how insanely house-lusty a granite-humping and brick-licking nation ranks, include the house price-to-rent ratio, which shows if assets are overvalued compared to their investment value. Check that – tenants here are massively subsidized. Then there’s the price-to-income level, which calculates whether real estate is accurately reflective of economic growth. We fail, of course. Finally the price-to-disposable income ratio measures whether citizens can actually afford the houses they own, based on what they have after taxes and other debt payments. We suck epically.

The conclusion is houses are overvalued by at least 10%, and possibly up to 89%, depending on the analysis. None of this, by the way, factors in higher mortgage rates, and we all know those will be here by the time home loans taken today are renewed. That should be fun.

But these academic and economic measures miss the ugliest secret of the Canadian housing market, and the one true marker of its bloated excess: the Mommy-to-Market Ratio.

This measures the extent to which Moms (and Dads, to be fair) are messing with market forces and subverting supply and demand by shoveling their offspring into real estate ownership when they actually cannot afford it. A massive amount of money is being sucked out of inflated real estate and retirement accounts to be inserted back into the housing market in what could be the ultimate Ponzi of risk.

We’ve all marvelled at the rise of the Bank of Mom & Dad, but the latest numbers show it’s not only flooding the market with first-time buyers who shouldn’t be there (thus inflating prices), but also impacting the move-up market (inflating them more). Thanks to BMO’s ‘Home buying Report’ and the survey it did of a few thousand people we now (shudder) know this:

Almost half (42%) of all the moist Millennials and unsuspecting virgins aroused by the thought of a new mortgage expect Mom to fork over the down payment. That gift will be about $60,000 on a property costing an average of almost $315,000. The impact of this is awesome. For starters, the kids are nuts. They behave the way you’d expect others to when they’re given money for nothing. The bank found a stunning 48% are happily willing to enter a bidding war – up sharply from in the past.

Meanwhile 40% of the kids say that without this cash they wouldn’t even be considering buying. So what is the impact on the market overall?

Well, last year 481,162 resale houses changed hands. Almost 35% (according to the mortgage industry) of those deals were done by first-time buyers. So if 2015 is the same, and the bank numbers are solid, then 42% of the 168,400 first-time buyers will use the Bank of Mom. That’s 70,730 buyers snorfling an average of $60,000 – for a total of $4,243,800,000, or $4.2 billion. Generally speaking, that’s money which in normal circumstances (ie – young people not buying stuff they can’t afford) would not be spent on houses, and is swelling the cost of real estate for everyone.

Well done, Mon & Dad. Bigger mortgages everywhere.

But it gets worse. The bank also found that sucking on the parental teat doesn’t end with a first house purchase. An astonishing (to me) 42% of current homeowners who want to graduate to a better trophy home are expecting Mom to step up to the plate once again. This time the kids (who should know better) expect her to provide 20% of the cost of a house averaging $474,000 – or almost $95,000. Half of these people say that without family dole they would not be moving.

Hmm. So 42% of 312,800 move-up buyers is 131,400 couples, who expect a total gift of $12.4 billion. That gives us a grand total of over $16 billion in a year pouring into an inflated real estate market, turning it into more of a speculative gasbag. The scary part is that most of this money is coming from the equity of already-overvalued houses, or from the savings and investments of people steaming towards retirement, who are obviously counting on real estate to fund their final decades.

And, as we already know from a Genworth survey, about a third of all the kids getting pushed by Mom into real estate say they can’t make ends meet. Just imagine what happens when mortgage rates creep.

So there you go. A nation of the horny borrowing against houses they have puffed up so their lusty kids can buy more houses at inflated values after going through bidding wars, ensuring everybody pays greater than market price. And they think this is an act of love.

If they only knew.

208 comments ↓

#1 not 1st on 04.23.15 at 6:29 pm

“The conclusion is houses are overvalued by at least 10%, and possibly up to 89%”

You must have had Nicole Foss over for coffee or something

#2 Andrew Ross on 04.23.15 at 6:39 pm

Mr. Turner what did you think of the provincial budget today?

#3 Derek R on 04.23.15 at 6:39 pm

It’s been a while since I last distributed the GarthFAQ. So here, once again, is a link to help anybody who isn’t sure who [email protected] is, or whether they should worry because they don’t have any lawn ornaments.

The GarthFAQ

#4 John on 04.23.15 at 6:42 pm

FIRST

#5 JSS on 04.23.15 at 6:43 pm

For every person who becomes poor out of this house lust deal, there is another person becoming wealthier.
Who is this person(s)/institution(s)?

#6 Andrewski on 04.23.15 at 6:43 pm

I would bet that the same people who can not afford to buy real estate without family help, also have zero money invested! Sad to see the financially illiterate so heavily propped up by their enabling parents. Most of those parents started out with nothing & somehow believe they are doing right by opening their pocketbooks for their offspring. Clueless!

#7 waiting on the westcoast on 04.23.15 at 6:44 pm

Thanks Mom and Dad! Keep funding your kid’s purchases…. Helps keep the renter market priced LOW…

#8 Yo on 04.23.15 at 6:48 pm

Número 1

#9 ronh on 04.23.15 at 6:48 pm

Isn’t stupidity a universal human right?

#10 LH on 04.23.15 at 6:49 pm

Welcome to the patrimonial (matrimonial?) capitalism of the 21st century. 99 percent of kids without parental wealth just don’t stand a chance.

#11 bdy sktrn on 04.23.15 at 6:49 pm

well at least mom can ‘love’ the fact that jr is not renting!

#12 LH on 04.23.15 at 6:50 pm

Travail, famille, patrie

#13 John on 04.23.15 at 6:50 pm

Spot on. No different among wrinklie parents we know of in several other countries. Maybe it’s a biology thing. More likely it’s tied to parents who’ve been told they’re wealthier than they think….. Not to worry, condo hatcheries in China are defaulting on their bond payments… Maybe it’s a pandemic thing!

#14 old gringo on 04.23.15 at 6:53 pm

A case of the blind leading the blind.

#15 Weenerman on 04.23.15 at 6:55 pm

Garth, your irrational bias is really apparent in this post.

We get a series of posts featuring cute pooches and now we get a “a-hole” cat knocking over a drink…

No wonder you face so much criticism.

#16 Millennial on 04.23.15 at 6:58 pm

i am a millennial myself.

Has anyone noticed that the worldwide slow-down could be related to the fact that the boomer generation is moving to the retirement stage? if there is some truth to it, then this “slowdown” will become the new norm in the future.

#17 Income Splitter on 04.23.15 at 6:58 pm

We received our Tax Refund today, including the $2000 from Income Splitting, and put most of it in the TFSA.
However, although the $2000 is greatly appreciated, the moment is bitter sweet, as it may be the first and last time we receive it if the NDP or Liberals reverse Income splitting.

Perhaps if their reasoning had been different, however, claiming that a couple’s net income of around $75,000 means you are wealthy and don’t need the money, shows that they are completely out of touch with the economy and reality in general.

With an income of $75,000, you can’t buy a house, or even realistically a condo in Calgary. If we bought a condo we would have less than $1000 a month to live on minus the nappies and milk (Nappies cost $100 a month and milk costs $300 a month – I would have thought Justin would know that……). So $600 for food and everything else (excluding bills) is not very realistic.

Then on top of that, the NDP and Liberals plan to reverse the TFSA increase, because, if you are “wealthy”, then you don’t need it, and if you are not wealthy then you won’t be able to save enough to max out the contribution limit anyway, so why have it?

Well, we are not wealthy and can’t afford a condo (if you include the fees etc), but we manage to max out our TFSAs. – this is the only thing that gives us hope that one day we will be financially “stable”. How do we do it? Well, we rent a house that looks like it belongs in the 70’s show and when the windows no longer close, the landlord fixes them with bootlaces (literally).

#18 Stunned on 04.23.15 at 6:59 pm

I myself was stunned when I learned my mother not only co-signed the loan for my sister, she ended up buying the house when my sister couldn’t close and now pays the mortgage and utilities. Where she gets the money I do not know.

My sister certainly needs the help, she decided herself into a fairly precarious situation, but it all seems a bit off the wall to me. None of the other siblings would have imagined, let alone received, such assistance.

But my mom figures it was the best decision ever, after all the house has in theory appreciated so she is actually making money off the deal. I hope she’s right when the dust settles years from now.

And I also hope she isn’t financing it with a reverse mortgage on her place! The interest on those is killer.

But they don’t take financial advice from me. After all I’m “lucky”. True, after years of university, living in a basement suite (although it was a nice one, couldn’t tell it from an apartment on the inside), working hard, and having some investment “luck”, I guess I am lucky but that also makes me ineligible to give advice.

Oh well I guess that is a good thing. The worst thing you can do is give advice. The only time it ever worked out was when I gave my friend a copy of my cohabitation agreement and he changed the names basically. It saved him a lot of money and he thanks me again every time he has an opportunity. But most of the time when you give advice it either isn’t implemented the way you hoped or that particular advice doesn’t result in overnight riches and then everyone is mad at you.

Garth is in the business of giving free advice here on this website. (You get what you pay for ;-).) But look at how many times he laments the lemmings seem to have no idea which way the piper is going. It must be like coaching youth sports. It’s easy enough to deal with the kids but the parents don’t seem to know what they signed up for. Practice? Oh no that is homework night. Game? No that one is too far away. Tournament? You’re kidding, right? City finals? Well I didn’t expect we’d make the finals so I planned a vacation. “Well yes I signed up for competitive because little Johnny is so good but I didn’t think that meant 2 practices a week.” Coaches sometimes joke about the “rating” of the “excuse”, because you don’t have to coach for long before you’ve heard more than you can remember. And the thing is, when you are a coach you are supposed to be giving advice. At this point I just resign myself to whatever happens.

#19 W on 04.23.15 at 7:01 pm

I thought the average down payment was close to 7%. The people not expecting help must put down almost nothing.

#20 Andrewski on 04.23.15 at 7:04 pm

Re: #4 John & #8 Yo, your partners must be unsatisfied by your desire to always come 1st?!

#21 Brunett43 on 04.23.15 at 7:06 pm

@ #3 Derek R…Thanks for the GarthFAQ…..It’s all making “cents” to me now!

#22 Fleabitten Monkey on 04.23.15 at 7:06 pm

So is the “expectation” of these entitled millenials likely to be fully realized? I’d like to see the stats on that. What have we become when we expect our parents to fork over $60K-$95K on 1st and 2nd RE purchases before they are kicking up daisies. Things are really different versus a decade ago. This is almost comical, and most certainly sad testimony to a generation and their parents, for that matter.

#23 Ralph Cramdown on 04.23.15 at 7:07 pm

#9 ronh — “Isn’t stupidity a universal human right?”

Nope. Morons are now a protected minority:
http://johnhcochrane.blogspot.in/2015/04/just-when-you-thought-financial.html

Now, for today’s humour. A seller’s real estate agent is outraged — OUTRAGED! — when he unwittingly becomes part of a reverse auction:
http://www.torontorealtyblog.com/archives/negotiating-in-good-faith/
How did the buyer’s agent know he wasn’t going to have three deals accepted? My guess is that he knew the market and could actually price commodity condos, rather than just being an order taker. So he got signbacks instead of live deals. And if you DID accidentally get TWO properties at surprisingly below market prices and had to get rid of one in a hurry, possibly incurring an extra land transfer tax? Not the end of the world.

It’s nice to see an occasional wolf among the sheep.

#24 Rentals on 04.23.15 at 7:10 pm

Rentals aren’t cheap in the 604 at least. Maybe cheap in terms of low yield but not cheap in terms of affordability.

It’s all out of whack and the chickens are coming home to roost when the city is losing plenty professionals to other cheaper jurisdictions. That brain drain is going to be a real problem.

Where was that picture taken? The houses seem to be falling over. Probably hundreds of years old and in dire need to be bulldozed and replaced with glass and steel condos!

#25 Brian Ripley on 04.23.15 at 7:11 pm

re: “Genworth survey, about a third of all the kids getting pushed by Mom into real estate say they can’t make ends meet.”

StatsCan 2012 Census Median Income:

Calgary = $98,300/yr
Montreal = $71,390/yr
Toronto = $71,210/yr
Vancouver = $71,140/yr

My average provincial earnings data chart
http://www.chpc.biz/earnings-employment.html

shows that in January 2015 (most recent data):

AB = $60,884/yr
QC = $44,163/yr
ON = $49,470/yr
BC = $47,599/yr

From the earnings data, I’m guessing that it is parents in the big urban centers that are promoting real estate over TFSAs to their kids. In small town Canada, if there is no major employer or Government promotion, real estate is probably a much bigger risk for parents.

#26 Interstellar Old Yeller on 04.23.15 at 7:11 pm

Good thing we’ve got that seniors’ dole for the parents doubling down on RE.

#10 LH – while I agree that it’s getting harder for kids to compete if they lack parental resources, in this case (parents gifting part of a home) we’re looking at a wealth destroyer, not a builder.

#27 Freedom First on 04.23.15 at 7:12 pm

Unfortunately, when bubbles burst, millions of people get hurt by being financially squished like a bug on a windshield. Fortunately, when bubbles burst it also means another splendid opportunity for others to make money to make money to make money. No exception.

However, when you make a killing from when these opportunities arise, keep it to yourself, like it talks about in the book “The millionaire next door”, as the anger and hostility towards you from the jealous and envious is hostile. I mean, just look at the some of the Millennials behavior towards the Boomers. Self pity, entitlement, jealousy and envy, and anger and hostility. Don’t get me wrong, there is Millennials I will talk to, just as there are Boomers who aren’t a$$holes toward the younger people. Every generation has their jerk offs.

#28 young & foolish on 04.23.15 at 7:13 pm

WTF !!! I better have a chat with my parents!

#29 lee on 04.23.15 at 7:14 pm

There is absolutely positively no way houses are overvalued by 89 percent.

#30 Victoria Real Estate Update on 04.23.15 at 7:17 pm

Canadian first-time and move-up buyers are borrowing from parents on a scale that far outdoes that in the U.S. as the U.S. housing bubble inflated from 2000 to 2006. This shouldn’t be a surprise since all other metrics that can be used to compare one housing bubble to another clearly show that Canada’s housing bubble is much larger than the 2006 U.S. bubble.

For example:
– household debt levels are higher in Canada than they were at peak in the U.S.
– price to income and price to rent ratios are higher in Canada than they were in the U.S.
– Canada’s homeownership rate is higher than it was in the U.S.
– overall, house prices in Canada increased by about twice as much as in the U.S.
– in Canada, the percent increase in employment in the construction industry is higher than it was in the U.S.
– in Canada, the percent increase in real estate investment is higher than it was in the U.S.
– HELOC debt in Canada is much higher than it was in the U.S.

House prices in Victoria have fallen about 12 to 15% since 2010 despite emergency interest rates. Prices across the rest of Canada will follow the same downward path. It’s only a matter of time.

The bigger the housing bubble (think Canada), the bigger the price decline.

Unfortunately I haven’t had the time to post charts lately. I will be able to do more of that in the future.

#31 PharmBoi on 04.23.15 at 7:17 pm

If I ever tried asking for money to buy a property my parents would just laugh at me. They’d tell me that I’m lucky to be born in a first world nation and given all the opportunity that they could possibly provide me to pursue my post-secondary studies. Money was tight growing up and I saw the mental strain that took on my parents.

My idea of being a man is now being able to provide a comfortable life that they had not had for the past 30 years. I know they’re proud of me whether or not I have a house. The most important lesson is still not to spend tomorrow’s money today. Sad to see so many people do exactly the opposite, and some are evidently spending someone else’s money.

#32 Mr. Pink on 04.23.15 at 7:18 pm

Half a million dollars for these beauties, and they think they got a deal.

http://www.thestar.com/business/2015/04/22/how-four-buyers-found-a-toronto-house-for-under-500000.html

#33 mark on 04.23.15 at 7:19 pm

Around this confused planet, people look at horny little Canada and shake their heads.

“Oh no they just don’t understand Canada” – Canadian bank or real estate economist.

#34 45north on 04.23.15 at 7:23 pm

That gives us a grand total of over $16 billion in a year pouring into an inflated real estate market,

the market can drop faster than the offspring and their parents can get their money out. It’s not like they (the offspring and their parents ) are day traders with their fingers over the sell key.

#35 T.O. Bubble Boy on 04.23.15 at 7:24 pm

The conclusion is houses are overvalued by at least 10%, and possibly up to 89%, depending on the analysis.

Kinda like how the 2015 Harper/Oliver Budget was overvalued by at least 10%, and possibly up to 89%.

#36 james on 04.23.15 at 7:24 pm

“The scary part is that most of this money is coming from the equity of already-overvalued houses”

In engineering we would call this a positive feedback loop.

Money is taken out of overvalued homes and re-injected back into the market with the help of low interest rates. As prices rise, more money is available for the same.

Nothing positive about that as prices divorce from economic fundamentals, like incomes. — Garth

#37 Ralph Cramdown on 04.23.15 at 7:28 pm

#16 Millennial — “Has anyone noticed that the worldwide slow-down could be related to the fact that the boomer generation is moving to the retirement stage? if there is some truth to it, then this “slowdown” will become the new norm in the future.”

People have noticed and spent a lot of time debating the issue. This is a good place to read about it:
http://www.voxeu.org/sites/default/files/Vox_secular_stagnation.pdf

#38 Totalchaos on 04.23.15 at 7:31 pm

The hidden numbers make the situation scarier than what you have laid out.

A couple up the street bought a 1.3 million dollar house three years ago “without” family help. After a few drinks at a pool party at their place, She tells me her parents give them the cash for the kids RESPs. More drinks and she tells me their last 3 holidays were paid for by mum and dad – Hawaii, Mexico and Alaskan cruise.

Another couple accross the street also bought “without” family help, but were gifted a 45k car from Ma and Pa.

Off the top of my head, there are three other couples within a stones throw that have similar stories.

Here in the burbs of Vancouver, I am shocked at how many professional people in their 40s and 50s have lifesyles heavily subsidized by Mum and Dad. It sure makes it easier to “save” for that down payment!

#39 Rexx Rock on 04.23.15 at 7:35 pm

High home ownership is a good thing,it reflects confidence in the economy.I know the prices are high but its not to make passive income but to live in for your family.When you look at the USA home prices,Canadians must make double their wage.

#40 Evangeline on 04.23.15 at 7:35 pm

If anyone like British comedy, this movie, “And Father Came Too”, is right on topic.

https://www.youtube.com/watch?v=XSN0OkSQNKk

#41 Daisy Mae on 04.23.15 at 7:46 pm

#17: “Nappies cost $100 a month….”

*****************

Boo, hoo. Use cloth.

#42 Nosty, etc. on 04.23.15 at 7:48 pm

SMan, shanks, Spectacle and a couple of others — Ignore the entitlement society for a few minutes. They will take care of themselves.

Remember Boxing Day 1973, the day the the first film The Exorcist was released, and the effect it had on audiences?

The first Jesuit priest, the main exorcist was the one who was carted off to a mental hospital, babbling on about things the likes of which he had never seen before, when the demonic possession of the boy ended Easter Monday 1949. He was in the hospital for about a year. Pregnant women had miscarriages, audience members were spontaneously throwing up or fainting.

See the video, as it appears nothing seems to have changed. Although this was a prank on a Brazilian commuter train, the reactions are similar — Shades of Regan and get a load of this nutbar — Pazuzu. Pazuzu is the demon on which The Exorcist is based.

BTW, this is the hot air which politicians and lobbyists are renowned for spewing forth. Old gasbags, full of emptiness (there are a few, rare exceptions). However, there has been a second eruption, which appears to be larger. So much for the carbonazi BS!

#43 Smoking Man on 04.23.15 at 7:53 pm

Wynee has lost her mind….. If she ever had one to begin with.

Whopper of a budget.

Ironically, the schooled brainwashed Tree Huggers that elected her will pay dearly, time to sell, get the hell out of here, move the shop to a climate that is actually warm.

Somewhere over the rainbow.. Where stars still shine.

Ontario it’s over…

Old Man, Make some room for me in Mexico…

#44 Mark on 04.23.15 at 7:59 pm

“99 percent of kids without parental wealth just don’t stand a chance.”

Until we see a US-style correction in Canada, and leverage effectively amounts to the kiss of death in the housing market. I know it may not seem intuitive to many people out there, but a practical consequence of negative equity is that literally newborn babies and the drunk homeless guy on the streetcorner are wealthier than a large cross-section of young “middle class” families that gorged on housing debt.

So in such case, the “parental wealth” may very well lead to long-term destruction of wealth for all involved except the house vendor and the bank that insured the resulting subprime mortgage through the CMHC and gets to collect spread on it.

#45 Sub Prime on 04.23.15 at 8:02 pm

There seems to be a misconception that subprime was the sole cause of the US crash, and as there is little subprime in Canada it cannot happen here.

In my opinion this is false. The issue was excessive debt and over exuberance in housing. Subprime bust because it was the weakest link – the housing crash would have happened anyway without it. Why? Because the real estate sector was massive, millions of jobs in construction, real estate services, mortgage origination and housing retail were lost, and as many people were pay check to paycheck, they had to sell the house! Without subprime there would have been a severe recession regardless, even if there was only an initial ‘healthy’ slowdown – that’s what happens when loose monetary policy gooses an asset class – there is a huge misallocation of resources, and jobs are created that should not exist in a more market balanced market; their low interest rates to recover from the dot com crash caused another catastrophe, and those low interest rates allowed adjustable and variable rate products that could otherwise not exist.

The US had massive damage after 2008, but at least could reduce interest rates to recover. We are pretty much at the bottom already – and may actually have to go up if US interests rates are rising and our inflation becomes an issue. I have no idea how this will turn out, or if some places will loose up to 89%, but worst case I would imagine some areas being truly devastated.

#46 jackofalltrades on 04.23.15 at 8:03 pm

Ours is up 24%!! woo hoo!

http://www.theglobeandmail.com/life/home-and-garden/real-estate/exclusive-how-much-are-homes-in-toronto-neighbourhoods/article24060725/

#47 Mark on 04.23.15 at 8:04 pm

“There is absolutely positively no way houses are overvalued by 89 percent.”

Oh easily. I calculated the current P/E of the housing market at approximately 35 across Canada. Over the long term, the justifiable P/E of an asset class that, at best, grows at the rate of inflation, is only around 10.

To go from a P/E of 35 down to a P/E of 10 is a loss of nearly 70% in value. And overshoot to the downside is to be expected as well.

#48 Republic_of_Western_Canada on 04.23.15 at 8:04 pm

Not to worry. There will be a federal residential property tax levied on all house-owners to fund the CMHC and various other budget shortfalls (mostly caused by marrieds), as soon as the Lie-berals form a minority gub’mint.

And people will be forced to pay that, as the neo-Colonial Canadian banks will simultaneously assign negative interest rates to all cash deposits (to be able to comply with Basel III reserve requirements) as is now the case in a few major countries.

And people will have to pay that too, as cash is in the process of being banned by Louisiana and by Chase Bank – as we freakin’ speak.
http://www.bloomberg.com/news/articles/2015-04-10/citi-economist-says-it-might-be-time-to-abolish-cash

You heard it here first.

#49 Alex G. on 04.23.15 at 8:09 pm

#29 lee on 04.23.15 at 7:14 pm
——————-

If you compare home prices to rents, then yes, you end up with anywhere between 70% and 89% for most data-sets that I’ve seen.

Go to http://www.economist.com/blogs/dailychart/2011/11/global-house-prices and look at the tab labeled “Prices against rents” to get a visual representation of it. Also, make sure Canada is selected (we’re the pink line).

#50 Kirk on 04.23.15 at 8:11 pm

I’ve come to the conclusion that ignorance is bliss. Everyone I hang out with spends every dime they make on either A) Housing or B) Depreciating stuff not in category A

They don’t care. But they are so happy. Should I be jealous or thankful that I know better?

#51 Mac on 04.23.15 at 8:11 pm

I’m self employed and pay myself just a hair under Calgary’s median family income. I save/invest 48% of my T4 pay (leave money in the business too). I rent. I wouldn’t dream of buying a house right now. Calgary’s housing market is so far out too lunch I don’t know whether to laugh or cry. I have a nice wad of liquid cash and can call the land lord when something goes sideways. I’ve “owned” two houses in the past. Made out like a bandit on one and lost my pants on my last one – resulting in bankruptcy. A house is a place to live. Make it as cheap as you can put up with as far as I’m concerned.

#52 Republic_of_Western_Canada on 04.23.15 at 8:11 pm

#39 Rexx Rock on 04.23.15 at 7:35 pm

High home ownership is a good thing,it reflects confidence in the economy. […]

Nope, it’s absolutely the opposite.

For the majority, it’s a last desperate ‘hail mary’ financial play to simultaneously open an HELOC spigot to subsidize an otherwise unworkable day-to-day cash flow situation, and to erect a facade to show you ‘belong’ to society and are doing well.

#53 JustMe on 04.23.15 at 8:15 pm

http://ottawacitizen.com/news/national/glavin-canadas-unhappy-affair-with-chinas-millionaires

Vancouverites are the unhappiest people in Canada, falling dead last among the residents of 33 cities across the country.

#54 Tony from Calgary on 04.23.15 at 8:16 pm

Garth is absolutely correct; young people need to stop relying on Mommy & Daddy to subsidize their house-porn, granite & stainless lifestyles. Sad to see how many parents cough up these funds, as well as how many young people are expecting it.

In a completely unrelated note… hey Garth, got $60,000 you could “gift” my way? I’ll even promise to put it into a balanced portfolio (it’s not my money, so what the hell, right?!?) :D

-TFC

#55 Mark on 04.23.15 at 8:16 pm

I have no idea how this will turn out, or if some places will loose up to 89%, but worst case I would imagine some areas being truly devastated

It might be worth pointing out here that 89% “overvalued” isn’t a prediction of an 89% loss. But rather, that houses are at 189% of their predicted “fair value” price.

In order for prices to be restored to fair value, thus, a 47% drop is predicted.

Of course, overshoot could (and probably will) make that more like a 60-70% drop.

Might not happen in nominal terms, but certainly will in real terms. And I’m not sure where the government/BoC will be able to conjure up enough inflation to cover up such declines on a nominal basis. Especially since nearly every other country worldwide is now in the same sort of deflationary quagmire and competitive currency devaluation schema.

#56 Darren on 04.23.15 at 8:17 pm

So the bank of mom is a bigger reason for high real estate prices than HAM?
D’oh!

#57 Snowboid on 04.23.15 at 8:19 pm

Although we helped our sons through post-secondary, and a couple of times when they had smaller (under $ 10K) financial disasters.

But ask the bank of mom (or dad) for $ 50K plus – not a chance. Our sons in Vancouver know this, and as renters they are happily investing a thousands a month instead.

Our son in the Okanagan does own a home, but still wouldn’t get any help to ‘move’ up the ladder.

Why would anyone throw money away in when the RE market is so incredibly risky now and in the foreseeable future?

#58 4 AM Sunrise on 04.23.15 at 8:20 pm

#52 Republic_of_Western_Canada on 04.23.15 at 8:11 pm

I read #39 as sarcasm.

#59 Retired Boomer - WI on 04.23.15 at 8:23 pm

Just back from the Thursday night local bar wearing & drunk fest. Talked with a neighbor 63 my age still working, so is the wife.

Busy stuffing their 401K and ROTHS with look for retirement. Just ordered a new 3 wheeled Harley Trike for themselves. 54 GRAND. Of course, they are paying cash.
House is paid for as is their other junk.

Nice to see soon to be retired who have this simple shit figured out. We both believe the kids, offered education are now on their own. So scoot!

#60 Retired Boomer - WI on 04.23.15 at 8:24 pm

OOPs that should be local bar drawing….

the booze can’t type work a shirt!

#61 Republic_of_Western_Canada on 04.23.15 at 8:24 pm

#54 4 AM Sunrise on 04.23.15 at 8:20 pm

Hopefully…

#62 young & foolish on 04.23.15 at 8:30 pm

” this “slowdown” will become the new norm in the future”

I suspect that without government intervention, all markets would tank ….

#63 Rural Rick on 04.23.15 at 8:34 pm

I really do appreciate the facts you state so clearly here Garth. However I am reminded of a day when the bar manager at some bar i hung out in preps the waitress on how to refill the drinks for some regulars as he is going to grab his lunch. When he returns it is clear she hasn’t followed his instructions. When he asked her why her comment was “You know I don’t listen.”

#64 Yuus bin Haad on 04.23.15 at 8:38 pm

How about $16bn worth of fireworks – same result; shorter time frame.

#65 Willy H on 04.23.15 at 8:46 pm

When you factor in the cost if post-secondary education and a wedding on top of the Bank of M&D padding their children with enough cash to buy an over-valued home it’s no surprise 60% of soon to be retired Canadians don’t have enough saved.

If the children expect this kind of money from their parent’s they should be ashamed.

If parent’s are pushing their children into purchasing overvalued homes and financing them on retirement savings they deserve everything coming their way.

#66 Karma on 04.23.15 at 8:48 pm

#184 Mark on 04.23.15 at 12:20 pm
““That means that 152,000 Millennials have maxed out their TFSA’s.”

Sounds about right. And most of them are likely the kids of executives or otherwise high income individuals who didn’t save the TFSA money themselves.”

Mark,

How many millennials do you actually know? Where are you getting your anecdotes from?

Very few of the people I grew up with are “kids of executives or otherwise high income individuals”. My gf, for example, took care of herself and her younger brother from age 15 because her parents moved back to HK so they could make more money there than in Van. They were not rich by any means, but were able to pay for their kids living expenses and university, although both kids had to get part-time jobs since high school. She’s resigned to the fact that she’ll never be a home owner (except with my help), and she has $20k in her TFSA account.

I could list other stories of similar not-rich kids doing well on their own. Millennials are not as pathetic as you think they are.

#67 4 AM Sunrise on 04.23.15 at 8:53 pm

#18 Stunned on 04.23.15 at 6:59 pm
#22 Fleabitten Monkey on 04.23.15 at 7:06 pm

Yup, virgins who #DontHave1Million are expecting money from the Bank of Mom & Dad so they can get the house that Santa Claus promised them. Turn that coin over, though, and you find control on the parents’ part. Those down payments are not free lunches. Look at the mother from #18. Her actions may seem foolish, but it can be a way of maintaining control in one of her children’s lives. I don’t know why, but some Boomer parents get freaked out about their diminishing roles as guides and providers as their kidults grow up. That mother gets to say to herself, “aww, my daughter can’t buy her own house so I have to do it for her.”

#68 bob on 04.23.15 at 8:54 pm

I still fail to see the ‘problem’.

If mom and dad take out 60K, or 160K or 260K or 360K
they can ‘afford’ it they probably bought their 400K house 25 years ago and now it is worth 1.3m (made up number)

You said no crash. So lets say housing drops 30%
mom and dad’s house is still worth close to a million, still many times more than their original they paid.

If this is the ‘secret’ why housing price is so inflated, I don’t see why this is a problem for those with ‘wealthy’ parents.

#69 MSM-Free Zone on 04.23.15 at 8:55 pm

I remember the day when Harper made the announcement (overseas of course) that Canada’s CPP and OAS social programs were unsustainable in their current forms, thus necessitating delays in these social payments to future generations of average Canadians.

Fast forward to 2015 (election year) and the doubling of the TFSA contribution limits, despite the Parliamentary Budget Officer’s assertion that such limit increases are unsustainable and jeopardize future government revenues, and mainly benefit the wealthy.

Then again, the Harper Conservatives have never been strangers to hypocrisy (stacking the senate, omnibus bills, agricultural marketing boards, etc.) in the past.

#70 MIL Subsidized on 04.23.15 at 8:58 pm

I’m so tired of the anti-income splitting crowd complaining about how unfair it is, what’s unfair about levelling the playing field? The gov’t should have amended the tax laws to base your tax rate on household income, then the playing field is truely levelled, dual income households already get $$$ back to help pay for someone else to raise they’re kids, so they can live higher on the hog at a lower tax rate, how fair is that?

#71 Banjopete on 04.23.15 at 9:00 pm

But if you use your own money for a downpayment what are you supposed to make car payments with, or gym memberships, or RV payments, or ATV payments, or cell phone bills, or cable bills, or netflix bills, or student loans?

It’s weird how much money you can make and still feel like you’re getting by while people you know make much less and spend much more, and sleep peacefully as long as the monthlies are covered.

There’s a day coming, it’ll be sad, and maybe we’ll all seem like geniuses, something like idiocracy.

#72 Alberta Credit Counsellor on 04.23.15 at 9:04 pm

Yes, yes, I know – you’ve all heard that my profession is making money hand over fist right now. Things are indeed very sweet :)

That’s all true; but I am here today to broadcast a simple message to all my current and potential clients, since this blog has so many readers in Alberta.

Please come a little closer……….

You are all SO SCREWED!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

#73 Andrew Woburn on 04.23.15 at 9:05 pm

Some people think the Fed is going to hike in September.

Yeah, right!. What do these people know anyway? So what if they run the world’s biggest bond fund?

http://www.investmentnews.com/article/20150423/FREE/150429952/bond-investors-not-ready-for-a-rate-hike-in-september-pimco?NLID=daily&NL_issueDate=20150423&utm_source=Daily-20150423&utm_medium=in-newsletter&utm_campaign=investmentnews&utm_term=text

#74 MIL Subsidized on 04.23.15 at 9:06 pm

Ok now that my rants over, anyone have any thoughts as to when to invest my new TFSA gift? Should I hold out until June when the yanks might raise rates?

#75 Smoking Man on 04.23.15 at 9:14 pm

#42 Nosty, etc. on 04.23.15 at 7:48 pm

Volcano video blew my mind, wow, that’s power.

#76 Marco on 04.23.15 at 9:16 pm

Garth you nailed it.

“The scary part is that most of this money is coming from the equity of already-overvalued houses,” – Garth

“Just imagine what happens when mortgage rates creep up.” – Garth

Yikes,

And cheers.

#77 CalgaryRocks on 04.23.15 at 9:22 pm

#70 MIL Subsidized on 04.23.15 at 8:58 pm
I’m so tired of the anti-income splitting crowd complaining about how unfair it is, what’s unfair about levelling the playing field? The gov’t should have amended the tax laws to base your tax rate on household income, then the playing field is truely levelled, dual income households already get $$$ back to help pay for someone else to raise they’re kids, so they can live higher on the hog at a lower tax rate, how fair is that?

What’s unfair is that you have 2 people working like dogs paying the same amount of taxes as your VP husband while you sit on your ass eating bonbons.

#78 REALISTIC on 04.23.15 at 9:22 pm

Never mind early inheritances- Another point- my buddy just inherited 700K from his dad’s estate as did his brother. They both bought new condos in Calgary and Kelowna for cash. New boat, truck etc.

All these discussions fail to mention the enormous amount of money baby boomers and ultimately their children will inherit. Mostly tax free.

People who inherit will spend it. Plain and simple.

If you factor this into the “house market equation” hmmmmm maybe house prices will go up for years to come.

#79 prairieboy43 on 04.23.15 at 9:23 pm

Hope all those millenials will help their kids, 25 yrs from now. Helping some one out financially comes with strings attached. Read the fine print.

#80 Brydle604 on 04.23.15 at 9:24 pm

My wife and I are presently visiting a Camp and RV Park in the Fraser Valley.
It is very quiet except for young families who have lost their Houses and are trying to survive in trailers. Also quite a few Alberta licence plates.
The Melt down is beginning, The race to the bottom.
How depressing.

#81 r on 04.23.15 at 9:27 pm

When interest rate creeps up? Again missing the point its not about when rates goes up the discussion should be when is the next cut

No more, obviously. — Garth

#82 Mark on 04.23.15 at 9:37 pm

“If mom and dad take out 60K, or 160K or 260K or 360K
they can ‘afford’ it they probably bought their 400K house 25 years ago and now it is worth 1.3m (made up number)

The problem is largely “where does it end”? Folks who gave their kids, say, a 20% down-payment and prodded them into home-ownership, will face significant pressure from the kids to help make up the equity deficiency that will inevitably arise when houses go down 30-40% and renewing the loan is problematic. Precisely at a time when many of them will least be able to afford such.


You said no crash. So lets say housing drops 30%
mom and dad’s house is still worth close to a million, still many times more than their original they paid.

Well its not just a 30% loss for mom and dad, its also a 30% loss for the kids. And we know those kids are highly leveraged.


If this is the ‘secret’ why housing price is so inflated, I don’t see why this is a problem for those with ‘wealthy’ parents.

The problem is, most families doing this are not majorly wealthy. The kids are still having to take on monster mortgages after all, even with the “gifted” downpayments (for which there is still, in many cases, an expectation of repayment, even if not officially written into a contract!). The families doling out the downpayments are middle to upper-middle class, and housing is already a disproportionate level of their overall portfolios. The net effect is that they’re doubling down at the top of the market. Which will only end in disappointment and huge amounts of destroyed equity.

#83 Mommy-to-Market | Realties.ca on 04.23.15 at 9:38 pm

[…] Source: http://www.greaterfool.ca/2015/04/23/mommy-to-market/ […]

#84 Paul on 04.23.15 at 9:42 pm

It all fits, was on a house with multiple offers on the weekend my buyers hard working and saving folks.Our offer was 100 K over asking. One agent kept going back and forth to a Van parked on the street I knew her through the business so I asked if her buyers were standing outside the Van a twenty something couple.
She said yes I said wow big bucks for them she said the father was in the Van. My folks had no shot 150k over asking. Look out below when the music stops

#85 Good Grief on 04.23.15 at 9:42 pm

Overvalued by 89% ??

Hahahahahahahaha.

Sorry.

Hahahaha.

#86 debt pigs always win in canada on 04.23.15 at 9:43 pm

#71 Banjopete on 04.23.15 at 9:00 pm
But if you use your own money for a downpayment what are you supposed to make car payments with, or gym memberships, or RV payments, or ATV payments, or cell phone bills, or cable bills, or netflix bills, or student loans?

It’s weird how much money you can make and still feel like you’re getting by while people you know make much less and spend much more, and sleep peacefully as long as the monthlies are covered.

There’s a day coming, it’ll be sad, and maybe we’ll all seem like geniuses, something like idiocracy.

****************************************8

really.
The only day that’s coming is the day you get your eviction notice.
The end.

#87 Poor white people on 04.23.15 at 9:46 pm

DELETED (Anti-Chinese)

#88 Julia on 04.23.15 at 9:50 pm

# 28 young & foolish
“WTF !!! I better have a chat with my parents!”

LOL
It never crossed my mind to go to mine! Ever.
They paid for my education, figured the rest was up to me.

#89 Ben on 04.23.15 at 9:50 pm

Wonder how many of the smug boomers on here have been doing this. Bet they think it’s great – doubling down on a sure thing, right? It will make a market pull back twice as sweet.

Yet still people can’t see they are being bribed with their own money in a zero sum game. They think we are all richer.

#90 Ben on 04.23.15 at 9:54 pm

Karma – forget it you are wasting your breath. Boomers know deep down they are living off the young. To maintain the front it’s necessary to disparage them at ever turn.

This page is alive with insults about lazy kids. They are the new blacks and Irish in the generational apartheid.

#91 Kilt on 04.23.15 at 9:57 pm

Hey Garth.
I’m seeing some markets under pressure. If you see sales price to list price ratios of 92%, do you think it is reasonable to underbid a house by more than 10% if there are a good supply of alternatives on the market.

Kilt.

#92 Ben on 04.23.15 at 9:58 pm

Millenial – you are spot on – this is *all* about demographics. Deflation here we come. For a long time.

Central banks want to print but they normally do it through housing. With more selling than buying they are pushing on a string. Perhaps Poloz will go out with a shotgun and start making people sign up to a lifetime of debt? Otherwise they can’t make people want to pay too much for a house.

Demographics are in the driving seat.

#93 Don on 04.23.15 at 10:01 pm

Alberta employment insurance claims rise almost 30%

https://ca.news.yahoo.com/employment-insurance-claims-alberta-rise-181154032.html

and

Downturn pushes debt-burdened to seek help with financial woes

https://ca.news.yahoo.com/downturn-pushes-debt-burdened-seek-010004764.html;_ylt=AnXTef6OhnpVSYIJogiXPoISscB_;_ylu=X3oDMTB2YmkwaDJzBG1pdAMEcG9zAzIwBHNlYwNsbl9FZG1vbnRvbl9nYWw-;_ylg=X3oDMTBhdnVpNmo3BGxhbmcDZW4tQ0E-;_ylv=3

and

Friend who was recently laid off from CalFrac in Red Deer didn’t get last paycheque yet…Company is two weeks late, we are not talking about the severance portion. Whole crew in the same boat.

#94 A nation of mortgages on 04.23.15 at 10:01 pm

DELETED (Anti-immigrant)

#95 Nemesis on 04.23.15 at 10:04 pm

#DidIMissAnything?… #NeverMindThen,Or… #GeorgeWashingtonSleptHere!?!”…

“The standard measures of how insanely house-lusty a granite-humping and brick-licking nation ranks…”… – HonGT

https://youtu.be/CnMpTU7fS2s

[NoteToGT: TheDirectorsCut – https://youtu.be/47oJF2YFqos ]

#96 Victor V on 04.23.15 at 10:09 pm

http://www.theglobeandmail.com/report-on-business/economy/jobs/ei-claims-sees-largest-monthly-rise-since-recession-numbers-surge-in-alberta/article24094517/

Lineups for jobless benefits are growing, led by a jump in Alberta.

In Alberta – the province most exposed to lower oil prices – the number of people applying for employment insurance surged 29.4 per cent in February, the second straight month of 20-per-cent-plus increases and the biggest rise since the recession.

Across Canada, EI claims, an indicator of the number of people who will soon become EI beneficiaries, grew 6.7 per cent as every province in the country registered more claims in the month.

#97 Washed Up Lawyer on 04.23.15 at 10:10 pm

Some dandies from the leaders’ debate on the telly here in Alberta tonight.

Prentice (PC) – “Math is hard.”

Jean (Wildrose) – “Cut taxes, cut taxes, cut taxes and climate change is real.” (As opposed to “unsettled science” three years ago.)

#98 Don on 04.23.15 at 10:11 pm

As for the generational conflict bullshit.

Stupid transcends every generation – it just so happens that per capita the millennials and boomers have the largest numbers. I see like minded individuals in every generation. The whole us vs them crap is a load of shit.

On the subject of the TFSA – why raise the limit when most can’t take advantage of it. Boomers need to vote with their brains, not their pocket books and millennials as well as others gen x and y need to vote period.

And all those electioneering trolls saying “there is no alternative to vote for” what a ploy. There is always something better than a plutocracy or democratic dictatorship. Geezus _ I want the old Canada back. We have truly lost our way.

And yes a coalition government may be the best choice and it will force them to work together for the best interest of a wide variety of folks. Remember absolute power corrupts.

#99 Bindral on 04.23.15 at 10:20 pm

Garth/blog-dogs, what do you make of these articles?

http://www.theprovince.com/business/Terry+Glavin+Canada+unhappy+affair+with+China+millionaires/10995028/story.html),

http://www.bbc.com/news/world-europe-26636829, “The winners and losers of Portugal’s golden visa scheme’

#100 Binder Dundat on 04.23.15 at 10:27 pm

“I’ve “owned” two houses in the past. Made out like a bandit on one and lost my pants on my last one – resulting in bankruptcy.”

Just as a learning experience for the blog dogs, could you describe your diverse experiences with regards to owning housing further? Can you describe what circumstances and decisions led to the outcomes?

I realize this may be somewhat uncomfortable and I will understand completely if you demur. Your personal experiences might allow others to avoid similar fates, however.

#101 Retired Boomer - WI on 04.23.15 at 10:37 pm

Tonight’s post speaks of a new “spoiled generation.”

It will be very interesting to see how many of these young buyers (with help from mom & dad), will find it impossible to meet re-set mortgage payments at higher rates -SHOULD rates ever REALLY go up.

Should we get back to what we Boomers regard as ‘normal’ interest rates. Think 3% above inflation here.

Will mommy bail out the new spoiled? Will they just default? Will somebody help out mommy & daddy after they wasted their meager retirement savings to get the brats into Real Estate? Oh, who will save the stupid?

Many a change over a 30 tear mortgage…

Stay tuned for next weeks chapter: The Reckoning.

Such bullshit, let the kids understand you gotta figure out your life in the terms, and times, you have been born.
No Exceptions.

#102 ANON on 04.23.15 at 10:42 pm

89% sounds about right. I wouldn’t go a single percent over that, because it would cross into squirrely survivalist extreme territory.

#103 Shawn Allen on 04.23.15 at 10:43 pm

Confused about Money and Wealth?

JSS on 04.23.15 at 6:43 pm

For every person who becomes poor out of this house lust deal, there is another person becoming wealthier.
Who is this person(s)/institution(s)?

************************************
Sounds logical, but it’s not true.

In a rising market every home owner can be gaining wealth (so called making “money”) and no one loses.

Where did the wealth come from? Actually, from thin air. An average house simply is worth more “money” or worth more goods and services than previous.

In a falling market every single home owner can be losing money at once. It is quite possible for every owner to lose money.

Just like if some stock craters 90% in a day, every one that owned it can lose wealth as measured in money. Where did the “money” go. Into thin air, that’s where.

If a few people got out by selling early in the day the new owners lost the 90%. Not a single person would make money that day in the scenario I describe.

Same can happen with houses. On a given day or year, all can win for a while, money for nothing. Then all can lose with no winners.

Trading (buying / selling ) creates winners and losers. But the INDEX rising means the average holder makes money, INDEX falling means the average holder loses money.

In trading there is winner for every loser (setting aside trading costs) In buying and hold or in the INDEX, all can lose with no winners.

#104 Old Wrinkley on 04.23.15 at 10:45 pm

I now have two numbers for the amount I am required withdraw from my RRIF this year, the number I was provided on Jan 15, 2015 and a new lower number that was stated in the budget. How is this to be resolved?
If the money was already withdrawn would I be required to pay the additional tax on the excess???
as budget tax changes become law once they are announced.
Thanks,
Old Wrinkley

Whatever you have taken is added to this year’s income. — Garth

#105 Doug in London on 04.23.15 at 10:53 pm

@JSS, post #5:
The people who are becoming wealthier are the ones who had the common sense to sell their grossly overpriced house recently and make spectacular capital gains. They are like the investors who, 15 years ago, sold their Nortel shares at over $100 each.

#106 TurnerNation on 04.23.15 at 10:55 pm

Tonight’s blog is igniting a battle of the rexes.

#107 Smoking Man on 04.23.15 at 10:57 pm

What does it take to be a prolific writer. I’ve figured it out but technical obstacles are a challenge.

But black dog is a natural, a story within a story. She go it.

But why stop there. How about a story, within a story within a story..

You pull that one off, free sex, Rock star status, and a mansion in the Hampton’s. Short term rentals who.

But then, who needs the hassle..

Being a nobody rocks more.

#108 kommykim on 04.23.15 at 11:00 pm

RE: #41 Daisy Mae on 04.23.15 at 7:46 pm
#17: “Nappies cost $100 a month….”
*****************
Boo, hoo. Use cloth.

It was the $300 a month “milk” budget that had me thinking “WTF?”

#109 Mark on 04.23.15 at 11:02 pm

“All these discussions fail to mention the enormous amount of money baby boomers and ultimately their children will inherit. Mostly tax free. “

Big problem with this. Yes, it will happen, but inheritances are merely moving assets from one balance sheet to another, or extinguishing liabilities, whatever the case may be. Inheritances do not create more wealth that can be used to bid up prices.

The elderly are overwhelmingly invested in either housing and/or GICs. So if someone were to inherit GICs and sell them to buy a house, funding available to the housing market is reduced by the proceeds. In other words, a zero sum game. This is why inheritances have no effect on house prices. So their omission from “the discussion” is of no meaningful consequence.

#110 MIL Subsidized on 04.23.15 at 11:04 pm

Re: Calgary Rocks

Clearly you don’t have kids, there’s no harder job than raising kids, I’m no VP, but I work like a dog to support my family, my wife works 10 times as hard raising our kids, I don’t think it’s fair that my neighbour can pull in the same income, pay less tax, and get a credit for schlepping off the responsibility of raising their kids, I think it’s unfair capping it at 2000, as for the upper management types, I think there taxes likely eclipse the household incomes of you and I, and I’m ok with that

#111 Capital Direct.CA on 04.23.15 at 11:07 pm

DELETED (Anti-Chinese)

#112 april on 04.23.15 at 11:09 pm

#78 Realistic. Wouldn’t you say that’s been going on forever, older/old people gifting money to their offspring.
Real estate industry will latch on to anything to make people think it’s different this time.

#113 Ralph Cramdown on 04.23.15 at 11:12 pm

#95 Nemesis

It almost makes one wistful for coverture.

#114 Victor V on 04.23.15 at 11:24 pm

http://business.financialpost.com/personal-finance/tfsa/after-some-confusion-banks-now-letting-canadians-top-up-tfsa-for-2015?__lsa=f292-2c8b

A Bank of Montreal official confirmed that the CRA has issued a notice making it clear that contributions can be increased to $10,000 for 2015, and will allow Canadians to take advantage of the increased limit right away, even though it will take weeks to get through all Parliamentary stages.

“For 2015 and subsequent calendar years, the budget proposes to increase the TFSA annual contribution limit to $10,000. The CRA will allow financial institutions and individuals to act upon the new change effective immediately – prior to it passing through Parliament and before receiving Royal Assent.”

Jamie Golombek, managing director of estate and tax planning at CIBC, said CIBC had sought clarification from the Canada Revenue Agency and been told the money can go in now.

“We have received confirmation from the Canada Revenue Agency that, while the legislation is subject to Parliamentary approval, consistent with its general approach for proposed income tax changes, it is administering the measure on the basis that $10,000 is the new TFSA annual contribution limit. Clients may therefore proceed to contribute to their TFSA based on this proposed law,” said Golombek.

As I said here Tuesday afternoon: Budgetary tax measures have the force of law when announced. Such naivety. — Garth

#115 Mark on 04.23.15 at 11:25 pm

“Garth/blog-dogs, what do you make of these articles?

http://www.theprovince.com/business/Terry+Glavin+Canada+unhappy+affair+with+China+millionaires/10995028/story.html),

A rather unfortunate article not supported by the facts. Almost the worst kind of journalism possible, an unwarranted attack on people of certain ethnicity merely because they happen to be Canadians who own real estate. Almost reminiscent of the sort of dishonest propaganda used in 1930s Germany against a certain minority ethnic group for the political gain of certain tyrants.

#116 Centurion on 04.23.15 at 11:26 pm

#32 Mr. Pink on 04.23.15 at 7:18 pm
Half a million dollars for these beauties, and they think they got a deal.

http://www.thestar.com/business/2015/04/22/how-four-buyers-found-a-toronto-house-for-under-500000.html

———

Couple of interesting things I found in that article:

– “Down payment help from dad”
– ‘”The trick for us was finding a place where we would be comfortable if the market crashed and we were stuck there for 30 years. This is a tiny place — it looked much bigger in the pictures — but it’s cozy.”’
– “Both their mothers were quite vocal that the place was too tiny, too expensive and in need of too much work”

I really don’t understand how how some millennials feel that they absolutely must purchase a house and are determined to do it under any cost – especially in the country’s largest real estate market.

#117 LTL_FTC on 04.23.15 at 11:32 pm

#55 Mark on 04.23.15 at 8:16 pm
It might be worth pointing out here that 89% “overvalued” isn’t a prediction of an 89% loss. But rather, that houses are at 189% of their predicted “fair value” price.

Mark – you make a very good point here – it is easy to ignore this 89% number as fear-mongering if you don’t think about it. By the same token, 10% overvalued is a 9% loss if there is a correction to the mean. (10/110 as you point out). Not nearly as scary, but not what those suffering from the recency curse are expecting.

Thanks

#118 Goldie on 04.23.15 at 11:33 pm

have you noticed that huff that the MSM is making out of the increase in the TFSA? crazy!

they need someone… garth… to go on and tell the people about how good a TFSA truly is.

#119 Karma on 04.23.15 at 11:39 pm

#39 Rexx Rock on 04.23.15 at 7:35 pm
“High home ownership is a good thing,it reflects confidence in the economy.”

Up to a point. That point seems to be about 65%. Anything higher leads to a lack of future buyers to a point where it becomes riskier and less liquid as potential sellers outnumber potential buyers. If English Canada continues to be +70%, as boomers become net sellers, there will be significant downward pressure on housing because they will outnumber potential buyers.

———————————————————
“I know the prices are high but its not to make passive income but to live in for your family.When you look at the USA home prices,Canadians must make double their wage.”

That’s not an excuse for overpaying for a property significantly above the fundamentals. As you are probably aware, Canadians do not make double the US wage. Hence, all the organizations Garth listed are concerned about Canada’s housing situation…

#120 Don on 04.23.15 at 11:41 pm

#16 Millennial on 04.23.15 at 6:58 pm

i am a millennial myself.

Has anyone noticed that the worldwide slow-down could be related to the fact that the boomer generation is moving to the retirement stage? if there is some truth to it, then this “slowdown” will become the new norm in the future.
********************

That and the individual debt problem causing a decrease in sales. Gov debt etc.

#121 Mark on 04.23.15 at 11:42 pm

“If the money was already withdrawn would I be required to pay the additional tax on the excess???”

I believe there are some limited circumstances in which a RRIF trustee can agree to un-withdraw an amount. You might bring this up with your trustee. But otherwise, you have to pay the tax.

As Garth has pointed out on a few occasions, an orderly withdrawal of a RRIF is a much better thing than dying and having the whole thing taxed at highly punitive rates. Just because the minimum withdrawal schedule has been reduced doesn’t mean that you should adhere to the new schedule. Especially if you are male with anything that resembles the slightest of life-limiting health issues.

One thing I find rather alarming about the whole RRIF ‘debate’ is the number of seniors who seemed to speak as though they weren’t allowed to save outside their registered accounts. As though being ‘forced’ to withdraw their RRIFs in an orderly fashion was some sort of injustice the government was perpetrating against them. The terms of reference for the RRSP/RRIF program have been known to the public ever since its introduction. It profoundly defies logic that seniors (ie: the CARP crowd) would complain about the nature of a program for which they voluntarily participated with the terms of reference as prescribed.

#122 Centurion on 04.23.15 at 11:46 pm

However, I will definitely give them credit on one thing: at least they seem to understand the concept of a starter house. Good luck to all of them.

#123 Henry on 04.23.15 at 11:56 pm

It wasn’t too long ago that we were told that the oldies were screwing the Millennials and we need to rob them out of their pathetic OAS payments. Now we find out that the oldies are subsidizing the housing down payments of the young. I think it’s time to end the attempt at encouraging generational animosity.

#124 mousy on 04.24.15 at 12:24 am

Market price is the price paid (the buyer has determined the market price). So, you aren’t paying more than market price, even if you are in a bidding war. If you are the top bidder, then you have set the new market price.

#125 BS on 04.24.15 at 1:03 am

bob 68:

I still fail to see the ‘problem’.

If mom and dad take out 60K, or 160K or 260K or 360K
they can ‘afford’ it they probably bought their 400K house 25 years ago and now it is worth 1.3m (made up number)

Bob, I can only assume you are one of these idiot parents borrowing to give your kids a downpayment to buy a house. Your logic is this is OK for the parents to borrow money and give it to the kids because their house went up in value. The value of the parents house is irrelevant unless they sell. The parents need a place to live so they are not selling. They are borrowing to allow their kids to borrow money they otherwise could not qualify for (even with our ridiculous lending standards).

If the parents could afford it they would have the cash on hand to give the kids without borrowing it and if the kids could afford the house they would have their own down payment saved to buy the house. Anyone who can’t save their own down payment will not be able to afford the house long term.

#126 cyclist on 04.24.15 at 1:18 am

All sounds like “economic outpatient care” as told in the “Millionaire next door”

#127 Spectacle on 04.24.15 at 1:27 am

Re ::
#42 Nosty, etc. on 04.23.15 at 7:48 pm
SMan, shanks, Spectacle and a couple of others — Ignore the entitlement society for a few minutes. They will take care of themselves.

Remember Boxing Day 1973, the day the the first film The Exorcist was released, and the effect it had on audiences?

My reply ::

Hi Nosty etc…
Thanks for the mention. Yes, I have studied the interesting Psychological history of “social hysteria” .

Every age has its illnesses and influences. My input here, research, be aware, and make your own plan as best we can. Eg: don’t buy the “tulips” , or any other hysteria.

On a related note : read with interest your recent comment about health and personal journey with partial blindness etc. perhaps where you get your keen “vision” from. Always appreciate your research Nosty.

(Just steer a little clear of the dark stuff, it can weigh heavy on oneself.). We are called “second lifers” apparently. Given a second chance. As Mr Turner makes evident , many can plan to avoid at least the financial calamities of life, and should do so. Gifts from Garth !

Check your blood pressure everyone, along with you portfolio, its equally important.

#128 PM on 04.24.15 at 2:22 am

DELETED (Racist)

#129 juno on 04.24.15 at 2:30 am

Oh yes the entitled ones…..

Sure hope the parents are on the hook for any defaults on the loans.

Just think, we now know the freshies have no money so when the market hickups, they are done, but think about taking down their parent’s generation also.

Nice, when the house of cards crumbles there will be a crater left in its wake!

#130 juno on 04.24.15 at 2:39 am

The TFSA can easily be explain simply

20,000 in a perferred share making 5 % pays about

20000*.05 = 1000 per year.

normally that will be taxed about 40 to 50%. so $500 dollars saving because its tax free. Well whoopie doo

in two years 2 * 500 = 1000
3 * 1000 = 1500
in ten years 10 * 500 = 5000 saving in tax.

Get the picture, don’t forget profits made stays in this account and makes money (money makes money)

Last year my TFSA averaged 9.25% because I have a mix of stocks and interest bearing vehicles. Been maxing out since it was introduced. Its truly a sweet deal. Anyone not taking advantage of this is truly dumb. You can transfer /move your existing investments into these account just to shelter their gains

#131 Nemesis on 04.24.15 at 2:39 am

#Sometimes… #OneWonders… What’sSmokingMan… #DoingInTheNow… #Oh…. #Right….

http://youtu.be/hvnL4dtqIY8

#132 Mark on 04.24.15 at 3:59 am

“For every person who becomes poor out of this house lust deal, there is another person becoming wealthier.
Who is this person(s)/institution(s)?”

The way I look at it, participants in the RE economy have 2 choices. They can either own a house and derive actual or imputed rent from such. Or they can own debt that is used by someone else to own a house. And ultimately use the proceeds from such debt to pay rent.

Banks own debt. Homeowners own houses.

Over the long term, debt has a higher total return than the net return of homeowners including imputed rent.

This is why bank shareholders tend to become fabulously wealthy over time. While homeowners only do well if they can buy in the midst of a RE depression and sell during a RE bubble.

Recently I read a comment on Ross Kay’s website which is quite interesting:

http://www.rosskay.com/net-worth-and-the-realty-cycle.html

“What was even more interesting from a historical perspective is that even with this hindsight available, Canadians continued to rely on their Primary Residence as their primary investment vehicle. The result is that it took Canadians another 22 years for their Average Net Worth to reach $183,388 again (1st Quarter 2012).”

Yes, that’s right, owning RE was so devastating to the “average” Canadian that it took 22 years for average net worth to return to bubble levels. Meanwhile nearly all of the real gains of the economy since 1990 were vested elsewhere. Primarily with owners of financial assets.

Is there any reason why the long-term trend of banking being more profitable than passive RE ownership won’t continue? Probably not. Not to say that RE can’t be part of a (re)balanced portfolio, but the average Canadian that devotes a disproportionate amount of wealth to RE is almost certainly setting themselves up for long-term financial underperformance. Unless RE is bought at below average prices, and sold at above average prices — which isn’t a reasonable expectation over the long term, it is practically a certainty that owning RE will destroy wealth compared to the spectrum of other investment alternatives.

#133 The real Kip on 04.24.15 at 6:59 am

I’m 57 this year, classic Boomer. I helped my only daughter and son-in-law and my parents have helped me over the years and why not, they delivered two grandchildren in a timely manner. If I die tomorrow my 32 year old daughter will be a millionaire and I don’t begrudge it to her.

What’s the big deal?

#134 Bottoms_Up on 04.24.15 at 7:17 am

#124 mousy on 04.24.15 at 12:24 am
—————————————————-
But the seller also has to accept the deal, so the market is set between buyers and sellers. In a bidding war, the seller can make the buyers redo the offers. In this case, the seller has the edge in setting the market price.

#135 Smoking Man on 04.24.15 at 7:31 am

It’s all about the hood…

Interactive map shows GTA 2015 prices vs 2008

Whow, Long Branch kicks ass, Rural Whitby beat up bad.

http://www.theglobeandmail.com/life/home-and-garden/real-estate/exclusive-how-much-are-homes-in-toronto-neighbourhoods/article24060725/

#136 Ralph Cramdown on 04.24.15 at 7:38 am

#122 Centurion — “However, I will definitely give them credit on one thing: at least they seem to understand the concept of a starter house.”

I don’t think *I* understand the concept of a starter house. Since they were originally popular, what has changed?

Real estate commissions haven’t moved much, as a percentage of the price. But price/income has gone up, and governments have made those fees subject to GST. So homeowners are paying more months’ worth of salary (or of home price appreciation) to sell that first home.

Land transfer taxes have been introduced. Sometimes there’s a rebate for first time homebuyers, but only once. More months’ savings/appreciation.

Bank mortgage break fees have gone way up. If you don’t plan and time your trade-up or sale, you could be hit with five figure penalties. But everyone can time pregnancy, job changes and divorce, right?

Mortgage insurance premiums?

Maintenance and renovation surprises? Starter homes in expensive markets tend to have more ‘surprises’ than other housing stock.

Is mortgage interest + tax + maintenance on these places really likely to be less than rent?

Overall, given the big transaction costs involved, I think starter homes are very much an implied bet on continued rapid real estate inflation. And you get to live in a poorer neighbourhood than if you were renting. “Halfway between the St. Clair streetcar and the [unbuilt] Eglinton LRT.” LOL, that’s 1km from either of them. Right on the Keele bus line is more to the point. And no parking.

#137 maxx on 04.24.15 at 7:50 am

This fiscal idiocy is so ill-timed. Parental subsidy only serves to further hobble economic recovery. People are generally so accustomed to government hand-outs and “protective” measures such as artificially low interest rates.
Wealth creation is not a passive process and nobody just hands it over.
The longer this re worship goes on, the longer any true recovery will take.

Pathetic, misguided and lost country.

#138 earlybird on 04.24.15 at 7:59 am

#16 millennial

Demographics is absolutely the reason for this “new normal” worldwide. We will never see that growth again….I invest with that in mind always.

#139 Ben on 04.24.15 at 8:02 am

Amazing to read many of the comments. Why did people come to North America? In large part because Europe was a land where you were born poor, you died poor. It was not a meritocracy. Your fortune was tied to the land ownership in your family and you couldn’t get more because land prices bore no relation to salaries.

Fast forward 300 years and we have a bunch of lazy thinkers slapping each other on the back “the kids will inherit – what’s the problem”? Your great grandad would know what the problem is.

Finally only a small % of people will be bequeathed housing by their parents. Most of the rest won’t. And that’s the point. The banks get it. That’s why they are providing unlimited credit to you greedy fools.

Congrats on betraying your heritage. Given up in one generation for a slice of paper wealth.

#140 maxx on 04.24.15 at 8:04 am

#9 ronh on 04.23.15 at 6:48 pm

“Isn’t stupidity a universal human right?”

It’s not tolerated on public roads, so why should it be tolerated with public finance?

#141 maxx on 04.24.15 at 8:06 am

#12 LH on 04.23.15 at 6:50 pm

“Travail, famille, patrie”

Reprise?

#142 CalgaryRocks on 04.24.15 at 8:16 am

#110 MIL Subsidized on 04.23.15 at 11:04 pm
Re: Calgary Rocks

Clearly you don’t have kids, there’s no harder job than raising kids, I’m no VP, but I work like a dog to support my family, my wife works 10 times as hard raising our kids

Hey lady, people that work all day also have to raise their kids. And they do it AFTER they have worked all day.

And they work because they have to, not because they want to.

So get over yourself. You’re no special. And you certainly don’t work harder than people that have to work all day and THEN take care of their kids.

#143 Smoking Man on 04.24.15 at 8:44 am

Damn my last post should have read, spring 2014 vs Spring 2015..LongBranch up 30%

http://www.theglobeandmail.com/life/home-and-garden/real-estate/exclusive-how-much-are-homes-in-toronto-neighbourhoods/article24060725/

Point is I’ve been pumping this hood for years, said will be best performer.

Why:

15 min to downtown
10 min to airport
5 min to boat
60 to Niagara
1 min to lake
1 min Southside Johnnys
2 min to LMAO and Beer Store.
1 min to Woody’s Burgers

Still affordable, but not much longer.. It kick the crap out of beaches.

If your going to go long on real estate. Go Long Branch.

#144 Jh on 04.24.15 at 9:46 am

Garth,

Would it be possible for you to ban certain blog dogs? Like Mark.

Am i the only one that feels like he comments here to “flex” his intellectual muscle and is annoyed by this? I dont think anyone wants a macroeconomics/microeconomics 101 explanation for every comment posted here. Mark – Please create your own blog so that you may feed your ego elsewhere

#145 Shawn Allen on 04.24.15 at 9:50 am

Who got Wealthy?

Doug in London on 04.23.15 at 10:53 pm

@JSS, post #5:

The people who are becoming wealthier are the ones who had the common sense to sell their grossly overpriced house recently and make spectacular capital gains. They are like the investors who, 15 years ago, sold their Nortel shares at over $100 each.

****************************************
That will come true if house prices fall.

As it is house prices have not fallen much and have continued to increase in some cities. So those who did not sell have that wealth. Yes it could go away if house prices drop. For the moment they have it.

See my post at 103.

Some further random thoughts on wealth versus money:

There is a great deal of confusion about money versus wealth. All financial wealth is measured in money and can be converted to money (minus all conversion costs).

Money is defined as only cash (which is minor) and bank deposits.

There is a huge difference between money and wealth.

Money is having the medium of exchange by which to obtain goods and services and other forms of wealth.

Money is considered to be wealth since it can be so readily exchanged for wealth. So all money is wealth. Most wealth is not in the form of money although it is measured in units of money.

When we say we have a lot of “money” we usually mean a lot of wealth.

#146 maxx on 04.24.15 at 9:50 am

#43 Smoking Man on 04.23.15 at 7:53 pm

“Old Man, Make some room for me in Mexico…”

No worries Smoke, if OM is full-up, there are tons of overseas properties available at far better value than the eye-dropper controlled dross you often find here.

#147 Nagraj on 04.24.15 at 10:00 am

“High profile Bay Street personality – was found dead in a hotel room in Mongolia on Thursday.

‘It’s very tragic and shocking news’ said –

. . . engaged in a prolonged legal battle with the Mongolian gov’t [about some uranium mine]

Before he left for Mongolia last week, – talked with enthusiasm about . . . [the] arbitraton win.”

************************

Not that long ago they sent Gramps to get some donuts.
He drives up to the takeout but drops his money. He puts it in reverse and opens the door and bends down to pick up the money. Foot slips off the brake. Head crushed between the car door and the yellow post. Instant death.

***************************

What has this to do with the great Canadian housing bubble, you ask?
Things can go POP all of a sudden.

#148 Shawn Allen on 04.24.15 at 10:01 am

Never knew that getting your kids up for day care in the morning and then putting them to bed at night when you get home from work was considered “raising” them. What about that 8-10 hrs between?

*****************************************
I nominate this for ignorant self righteous comment of the week. Ignorant in both senses of the word.

If Day Care is so evil why don’t we suggest people home school their 6 year olds as well?

Each family makes its own choices, day care is neither inherently good nor inherently bad. It’s a great choice for many families.

#149 Shawn Allen on 04.24.15 at 10:05 am

Day care

More importantly, It’s a great choice for many kids.

I have seen plenty of very well adjusted polite kids who came through the system. Day care is also quite educational in terms of socialization skills. (Sorry Smoky)

Not saying it is better than stay-at-home, but that it seems to work well for most of the kids that go through it.

#150 CalgaryRocks on 04.24.15 at 10:09 am

#144 not 1st on 04.24.15 at 9:42 am
#142 CalgaryRocks on 04.24.15 at 8:16 am

Never knew that getting your kids up for day care in the morning and then putting them to bed at night when you get home from work was considered “raising” them. What about that 8-10 hrs between?

I’m sure you understand that kids don’t go to bed at 5pm and they need a bit more in life than what the 8-2pm daycare will provide.

The original question was ‘Why is it unfair for my VP husband to pay more taxes by himself then these 2 shleps that make half what he makes. Just because I sit at home taking care of my kids.”

And the answer is because the 2 shleps work more than your husband and you and on top of that also need to take care of their own kids.

And I also don’t buy the premise that raising your own kids, is the toughest job in the world. The toughest job in the world, to me, is any job where you don’t want to be, but you have to, because you need to take care of your kids.

#151 Vlad the impaler on 04.24.15 at 10:11 am

89%?
You can still live in it.
Fiat savings is an IOU from you know who.

#152 Ralph Cramdown on 04.24.15 at 10:13 am

#143 Smoking Man — “If your going to go long on real estate. Go Long Branch.”

You seem to be polluting your own neighbourhood:
http://www.thestar.com/news/gta/2015/04/21/air-quality-map-shows-torontos-most-polluted-neighbourhoods.html

Any chance of getting a scrubber installed?

But of course, anything that close to two major highways that were there before lead was removed from gasoline will have soil lead contamination issues as well. Maybe that’s why your dog is such an underachiever? Plant ragweed.

#153 Alex N Calgary on 04.24.15 at 10:43 am

Its a true stat, many people I know are in this category of bank of mom.
I would mention though that you talk a lot about investing to save up money to pay for your kids education, which is a similar amount of money.

Same house vs investment, Brad vs Garth ideas that is your business. I see as the market is actually declining now, in AB at least, you are working in the investment angle more and more each day, I don’t blame you as its your job and reason for this blog, just gotten more then a little stronger the last month or so. I suppose that once houses decline and us long time blog readers buy a bottemed house we won’t consider investments anymore. Anyways keep up the good work.

#154 CalgaryRocks on 04.24.15 at 10:46 am

#139 Ben on 04.24.15 at 8:02 am
Amazing to read many of the comments. Why did people come to North America? In large part because Europe was a land where you were born poor, you died poor.

Congrats on betraying your heritage. Given up in one generation for a slice of paper wealth.

Funny, there’s a song about this exact phenomenon. It’s in French, so only for the bilingual blog dogs.

https://youtu.be/k2V3NrvThlg

#155 Smoking Man on 04.24.15 at 10:49 am

#153 Ralph Cramdown on 04.24.15 at 10:13 am
#143 Smoking Man — “If your going to go long on real estate. Go Long Branch.”

You seem to be polluting your own neighbourhood:
http://www.thestar.com/news/gta/2015/04/21/air-quality-map-shows-torontos-most-polluted-neighbourhoods.html

Any chance of getting a scrubber installed?

But of course, anything that close to two major highways that were there before lead was removed from gasoline will have soil lead contamination issues as well. Maybe that’s why your dog is such an underachiever? Plant ragweed.
……

Ralphie, can’t you read a map, Shlong Branch is by the lake, looks pretty blue to me.

#156 r1200c on 04.24.15 at 10:49 am

Garth – you really should enable a “like” button on the comments (and even a “dislike” one too while you’re there…)

Actually I don’t care what you like. — Garth

#157 saskatoon on 04.24.15 at 10:52 am

#135 Smoking Man

wtf happened in nobleton????

#158 Ralph Cramdown on 04.24.15 at 10:55 am

Anyone taking odds on whether, if in a minority situation, Jim Prentice will cross the floor for a cabinet post?

#159 cramar on 04.24.15 at 10:55 am

A. Some dud out west even wrote a book, The Bank of Mom and Dad that addresses how Boomers can protect themselves when providing financial help for home ownership to children.

B. Way back in 1996, Dr. Thomas Stanley wrote The Millionaire Next Door that had a whole chapter devoted to this subject. He called in providing “financial outpatient care” for adult children. His research indicated that this was detrimental to building real wealth for the next generation. Why? Because giving children money to buy stuff, especially houses, gives them a sense of entitlement and reinforces their consumer lifestyle. He found that most people who become millionaires did not get financial gifts from parents. This caused them to work harder for what they had, made them more frugal (especially if parents were that way), and made them save and invest more. His conclusion was that parents who provide financial outpatient care are not doing their offspring any long-term favours and it is a detriment to building real wealth. Switch to Canada 2015 and some things never change!

#160 young & foolish on 04.24.15 at 10:57 am

“Should we get back to what we Boomers regard as ‘normal’ interest rates. Think 3% above inflation here.”

Ah the good old days …. will they come back in this lifetime?

#161 young & foolish on 04.24.15 at 10:59 am

“Wouldn’t you say that’s been going on forever, older/old people gifting money to their offspring.”

North America becoming like “Old Europe”?

#162 Bottom Feeder on 04.24.15 at 11:00 am

TFSA for small business owners. Garth, for small business owners, would it be better just to leave the money inside the company and invest it in an account, pulling the dividends out gradually upon retirement, or to take out the money as dividends as it is generated and put it into a TFSA. It seems counter productive to pay tax on it up front just so it can be put into a TFSA and grow tax free. Thoughts?

Be aware if you retire with money in a corp that becomes inactive it will probably be reclassified as a passive corporation with the tax rate rising to 46%. This is not a valid strategy. Also know there is zero net tax to be saved by pulling cash flow as dividends rather than as earned income. All you are doing is having half the tax paid by the company and half by you, rather than allowing the corp to deduct all of your salary. — Garth

#163 Another Old Wrinkley on 04.24.15 at 11:05 am

104 Old Wrinkley

Re the new Apr 2015 RRIF minimum amounts.
If you have already drawn out the Jan 2015 higher amount, you will be allowed to redeposit the net difference, between the new lower amount and the original higher minimum you withdrew , back into your RRIF account before 2016.

Surprised you missed this Garth.
From another old wrinkley

Actually, I didn’t, but why would you bother unless you have a $1 million RRIF? — Garth

#164 Vamanos Pest on 04.24.15 at 11:07 am

So the current rational for RE prices in Canada is:

-price inflated
-borrow against inflated price
-pump this money back into the market through gifts for down payments
-with the result of inflated prices

All totally legal, and in fact taxpayer insured through CMHC…

…and we’re having a debate on whether the TFSA limit should be 5500 or 10000?

Are we F#@&ing crazy?

#165 not 1st on 04.24.15 at 11:14 am

#145 Jh on 04.24.15 at 9:46 am

Would it be possible for you to ban certain blog dogs? Like Mark.

—-

Believe it or not but Mark has taken on the insensitive economist role on the blog so Garth can play good cop.

#166 I think to myself – you idiots!” says James Rhodes on 04.24.15 at 11:15 am

“You’re seeing some stock brokers bragging on social media about how successful they’ve been taking the $10,000 or whatever they’ve put into TFSAs and turning it into $100,000 based on speculative stock trades and I think to myself – you idiots!” says James Rhodes, a Waterloo-based tax lawyer. “If I was an auditor I’d be printing their comments out and using it to create an audit link and send an auditor on them.”

The catch is – the Canada Revenue Agency can do just that. After all, anything in the public record is fair play, CRA spokesperson Jelica Zdero told Yahoo Canada in an email response.

What the hell is James Rhodes, the Waterloo-based tax lawyer talks about?

#167 kommykim on 04.24.15 at 11:17 am

RE:#145 Jh on 04.24.15 at 9:46 am
Would it be possible for you to ban certain blog dogs? Like Mark.

There’s a simple little device on your mouse called a “scroll wheel”. Roll it towards you when you see the name Mark, KommyKim, or whoever else annoys you.
I’d rather have the freedom to ignore Mark (or anyone else) than censorship.

#168 frank on 04.24.15 at 11:26 am

…and a huge oustanding mortgage is an IownU

#169 Rational Optimist on 04.24.15 at 11:30 am

32 Mr. Pink on 04.23.15 at 7:18 pm

There are a lot of gems in that; thanks a lot. My favourite are the last geniuses, who offer 99% of ask on a house that’s been listed six weeks, just because the sellers dropped the list by ten grand. That, and the first guy who says he “can’t believe a house that size is half a million dollars, but that’s what people are paying.” Yep, all those other people who pay half a million dollars for a twenty foot lot on Keele are idiots.

#170 Franco on 04.24.15 at 11:43 am

“The conclusion is houses are overvalued by at least 10%, and possibly up to 89%”

Why not just say that houses are overvalued between 5% and 95%.

Mr. Turner, you must be having an off day, it happens to the best of us.

Those are not my conclusions but, as I stated, the results of various analyses. I regret you’re having difficulty reading today. — Garth

#171 45north on 04.24.15 at 11:43 am

james: In engineering we would call this a positive feedback loop.

Money is taken out of overvalued homes and re-injected back into the market with the help of low interest rates. As prices rise, more money is available for the same.

Nothing positive about that as prices divorce from economic fundamentals, like incomes. — Garth

James is right. It is a positive feedback loop: higher prices lead to higher prices. This will go on until interest rates rise at which time prices will drop. Then lower prices will lead to lower prices. Another positive feedback loop.

In this sense positive doesn’t mean good.

http://en.wikipedia.org/wiki/Positive_feedback

I understand the term. I am cautioning anyone who feels this is ‘positive’. — Garth

#172 Snowboid on 04.24.15 at 11:48 am

#78 REALISTIC on 04.23.15 at 9:22 pm…

Recent surveys show almost half of boomers don’t think they have enough money to retire.

I don’t expect they will have much to pass on to their children.

Of those surveyed most of their net worth is tied up in homes, in other words the children inherit RE, not cash.

Don’t forget a homes’ value is zero until it’s sold.

http://tinyurl.com/GlobeMailRE

Also, a BMO study from last year stated the average inheritance is $ 100K, so your buddys’ experience isn’t likely the norm.

#173 Daisy Mae on 04.24.15 at 11:52 am

CBC: The ‘debt burdened’
http://www.cbc.ca/news/canada/edmonton/downturn-pushes-debt-burdened-to-seek-help-with-financial-woes-1.3042860?cmp=rss&cid=news-digests-canada-and-world-morning

#174 TheLaughingCON on 04.24.15 at 11:58 am

Re #135 Smoking Man
Great link SM,

Leaside, Lawrence Park, Bridle Path and some other “desirable” places appear to be already down 10% and some even down 20% from the the previous year. This is probably the result of CMHC hard limit of $1,000,000.

The properties in the other parts of Toronto/GTA still have a room to grow until they hit that $1,000,000 limit if it is not changed to a lower/higher amount.

But that is all the “growth” potential that one will get – and if the houses in a certain neighborhood are already pushing the $900,000 price tag – there is no much a room for potential “making out as a bandit” happy endings left.

Buyers be warned!

#175 Shawn Allen on 04.24.15 at 12:10 pm

Fiat Money?

Vlad the impaler on 04.24.15 at 10:11 am
89%?

Fiat savings is an IOU from you know who.

**************************************
Vlad does not seem to trust “fiat” money.

Warren Buffett, in contrast, who is about fourth richest in the world describes money as a claim check on wealth.

Warren has written about the dangers of inflation and eschews long term fixed income investments for that reason.

But he has no distrust of fiat money.

fiat savings is an IOU from the bank usually guaranteed. Money is a claim check on wealth and is “backed” by the willingness of everyone (except Vlad) to give up goods and services in exchange for money. And in the long term it is backed by the central bank not letting inflation get too high. Investors don’t have to worry much about inflation because they can easily find investments that beat inflation long term. Just avoid long term bonds.

Better to accumulate wealth and money than to worry that fiat money will become worthless. Cash money and bank deposits are an excellent SHORT term store of wealth and a VITAL medium of exchange.

If you don’t like our fiat money system, I am pretty sure you would really dislike an economy without it.

#176 Spamhuis on 04.24.15 at 12:10 pm

RE: #168

“You’re seeing some stock brokers bragging on social media about how successful they’ve been taking the $10,000 or whatever they’ve put into TFSAs and turning it into $100,000 based on speculative stock trades and I think to myself – you idiots!” says James Rhodes, a Waterloo-based tax lawyer. “If I was an auditor I’d be printing their comments out and using it to create an audit link and send an auditor on them.”

The catch is – the Canada Revenue Agency can do just that. After all, anything in the public record is fair play, CRA spokesperson Jelica Zdero told Yahoo Canada in an email response.

What the hell is James Rhodes, the Waterloo-based tax lawyer talks about?
—————————————————————
I thought you were allowed to invest via the TFSA?
Why would this bring an audit?

Because day trading, for example, is considered by the CRA as operating a business within a TFSA. If an audit concludes that, the gains will be reclassified as taxable income. — Garth

#177 Bottoms_Up on 04.24.15 at 12:18 pm

#165 Vamanos Pest on 04.24.15 at 11:07 am
——————————————————-
As one poster mentioned previously, foregone taxes on investment gains on $10,000 invested and growing each year is a big hit to government coffers….and where most of the tax savings will go to the wealthiest among us.

So yes, having the TFSA limit discussion is worthwhile.

#178 Rumpelstiltskin the Elder on 04.24.15 at 12:45 pm

To those who say that Mayor Robertson is in bed with the developers, I’ll say: Shame on you.
Allegedly, he has been caught with the Chinese pop star daughter of a detained Chinese City official indicted of corruption.

#179 daytrading on 04.24.15 at 12:55 pm

#178 Spamhuis on 04.24.15 at 12:10 pm
RE: #168

“You’re seeing some stock brokers bragging on social media about how successful they’ve been taking the $10,000 or whatever they’ve put into TFSAs and turning it into $100,000 based on speculative stock trades and I think to myself – you idiots!” says James Rhodes, a Waterloo-based tax lawyer. “If I was an auditor I’d be printing their comments out and using it to create an audit link and send an auditor on them.”

The catch is – the Canada Revenue Agency can do just that. After all, anything in the public record is fair play, CRA spokesperson Jelica Zdero told Yahoo Canada in an email response.

What the hell is James Rhodes, the Waterloo-based tax lawyer talks about?
—————————————————————
I thought you were allowed to invest via the TFSA?
Why would this bring an audit?

Because day trading, for example, is considered by the CRA as operating a business within a TFSA. If an audit concludes that, the gains will be reclassified as taxable income. — Garth

———

What would be the CRA definition of day trading?

You mention “for example”, what other profit making activities might not like the CRA within TFSA?

Whatever they want. Seriously. Use the tax shelter as it was intended. — Garth

#180 Reddy on 04.24.15 at 12:56 pm

A note to the mark bashers, I use my mouse wheel to scroll to his comments which usually are direct and to the point- as opposed to reading the long winded posts from others
And he’s ‘not as wrong’ as you claim him to be

#181 Shawn Allen on 04.24.15 at 12:57 pm

Home Schoolin’ fan?

But my kids are being educated and raised for the current and next century and my role in that is huge and not something to be contracted out to others. Smoking man is totally right.

************************************
Have not met too many home-schooled kids. Not sure I want to.

Good to teach your kids extreme “anti system” views and teach them to insult those with other views that should work out well.

I am okay for sure with the stay-at-home approach, but not so much with the stay-at-home and insult those that make other choices, which you view as your business.

#182 daytrading on 04.24.15 at 1:16 pm

#181
I thought you were allowed to invest via the TFSA?
Why would this bring an audit?

Because day trading, for example, is considered by the CRA as operating a business within a TFSA. If an audit concludes that, the gains will be reclassified as taxable income. — Garth

———

What would be the CRA definition of day trading?

You mention “for example”, what other profit making activities might not like the CRA within TFSA?

Whatever they want. Seriously. Use the tax shelter as it was intended. — Garth

——–

Ok, but it is hard to define what the “intention” is, if the CRA interpretation can be “whatever they want”.

Day trading is extreme example, but is there at least some sort of guideline about the “tolerable” frequency of trading within TFSA?

#183 TheLaughingCON on 04.24.15 at 1:35 pm

It is coming to a western country near you.

Greece’s Piraeus Bank offers relief to poverty-stricken borrowers

http://www.reuters.com/article/2015/04/23/greece-piraeusbank-loans-idUSL5N0XK3RM20150423

#184 Bottoms_Up on 04.24.15 at 1:37 pm

#183 Shawn Allen on 04.24.15 at 12:57 pm
——————————————————–
People with that outlook don’t seem to realize that they can ‘school’ their children outside of school hours. Let them go to regular school, make friends, see what society is like.

Then, if you have a beef with what they are teaching in school, teach your kids to be critical thinkers, to question things. “School” doesn’t just happen between 9am-3pm.

And by not having them in school, there is the potential for them to become social outcasts.

#185 Waterloo Resident on 04.24.15 at 1:41 pm

Hey, it could be worse. We could be all sitting on top of a CO2 pressurized Fracking time-bomb that is ready to explode and flood an entire city with meters of pressurized liquid toxic sand, like what happened here in Colorado a few months ago. Here, find out what’s going on in the U.S., it’s just crazy down there:

4 Mile Long eruption of Liquid Sand + stored CO2 @ Fracking operation in Colorado

https://www.youtube.com/watch?v=X2Omha8C4WY

Our houses might be 80% overvalued, but at least you wake up in the morning and you are not staring death in the face.

#186 Franco on 04.24.15 at 1:45 pm

Those are not my conclusions but, as I stated, the results of various analyses. I regret you’re having difficulty reading today. — Garth

My apologies, you are correct.

#187 DisgustMadeMePost on 04.24.15 at 1:47 pm

#180

http://www.theprovince.com/life/Mother+Mayor+Robertson+girlfriend+reportedly+arrested+China+corruption+probe/10998955/story.html

Ah yes, nothing like some good old fashioned mid-life crisis with international flair.

Take note for what she’s detained… sound familiar?

#188 Spiltbongwater on 04.24.15 at 2:00 pm

Whatever they want. Seriously. Use the tax shelter as it was intended. — Garth

How is buying and selling stocks not using the tax shelter as it was intended? Is there a minimum amount of time a stock has to be held?

Use common sense. It is an investment vehicle, not a trading one. — Garth

#189 Ogopogo on 04.24.15 at 2:09 pm

ZPR on a tear today. I bet all those whiners who complained a few days ago about how preferreds had collapsed failed to buy the bargain bin sale, unlike me who backed up the truck.

It is worth remind ourselves of course that you don’t buy preferreds for capital appreciation but for yield. Doomers never learn.

#190 Daisy Mae on 04.24.15 at 2:23 pm

#123 Henry: “Now we find out that the oldies are subsidizing the housing down payments of the young. I think it’s time to end the attempt at encouraging generational animosity.”

***********************

Sounds like a plan. If the younger generations aren’t happy with their lot in life, they should DO something about it and stop shifting blame. No one is responsible for making anyone else happy….

#191 TheLaughingCON on 04.24.15 at 2:25 pm

From Marketwatch – “How the stock market destroyed the middle class ”

http://www.marketwatch.com/story/how-the-stock-market-destroyed-the-middle-class-2015-04-24

Amazing chart on the “Net issuance of corporate equities – Nonfinancial Corporate Business”

Garth, any comments

#192 saskatoon on 04.24.15 at 2:36 pm

#17 Income Splitter

dude…why are you saying thank-you for getting back money that has been forcibly taken from you?

stockholme syndrome.

#193 cramar on 04.24.15 at 3:52 pm

Since this is a financial blog… interesting article:

How the stock market destroyed the middle class

“There’s something seriously wrong with an economy that nurtures a few billionaires but can’t sustain the middle class.

“Many factors have been blamed for the plummeting fortunes of the American middle class: globalization, technology, deregulation, easy credit, the winner-take-all economy, and even the inevitable tide of history.” [Add ‘Boomers’ if you believe some dogs on this blog.]

http://www.marketwatch.com/story/how-the-stock-market-destroyed-the-middle-class-2015-04-24/

Contrary to the headline, likely one contributing factor.

#194 Josh in Calgary on 04.24.15 at 4:07 pm

http://www.cbc.ca/news/business/tfsa-limit-change-takes-effect-immediately-ottawa-clarifies-1.3047776

Of course. Exactly what I said on Tuesday. Oh, ye of little faith… — Garth

#195 Mom's bank on 04.24.15 at 4:12 pm

Parents giving their kids tens of thousands to afford buying a house are tripping themselves up when the kids lose their jobs or can’t afford mortgage payments. Those same kids will always be coming back to Mom’s bank for more!

Entitlement of this Generation “ME” knows no bounds.

Parents are in for a world of hurt without a proper exit strategy built into the payment conditions…. but most won’t even put anything in writing, I’m sure!

Oh and by the way.. this Spring market is the peak for 604 and 416 RE.

Mark my words.

#196 DonDWest on 04.24.15 at 4:27 pm

#27 Freedom First

Your problem communicating with the younger generations is that like many baby boomers – you lack empathy.

How would you feel if a lottery winner came up to your face and started bragging how he “worked so hard” to win the lottery? Wouldn’t you feel the least bit of resentment, anger, and perhaps even frustration? I mean, this guy is calling you lazy, stupid, a loser, etc. while you’re busy working two to three jobs trying to make ends meet! He’s talking as if he earned winning the darn lottery!

Well, that’s what you sound like to the ears of younger people when you start bragging about their housing wealth. Your housing wealth is a lottery win – you didn’t earn it buddy.

Why should I take any financial, or life advice for that matter, from a lottery winner? Least of all a lottery winner who can’t treat his lottery winnings with any degree of humbleness.

This is why I go out of my way to no longer speak to the average baby boomer whenever possible. It’s not worth the stress or hassle. Sooner or later, the generational horns will clash – and usually it’s centered around real estate whether intentional or unintentional.

“Why don’t you have kids yet?” Ugh, maybe I can’t afford a house to put them in and maybe, ugh just maybe, I’m not willing to stuff kids in a 400 sq. ft. condo. Why should I sentence innocent children to 3rd world status; when I can live by myself in a somewhat relative 1st world status? There’s some morality issues that come to question here.

“Why haven’t you moved to locations with better job opportunities?” Ugh, maybe it’s because the locations with “better job opportunities;” are not opportunities at all considering the average house costs 1 million dollars.

“Maybe you should go back to school. . .” Because the 17 years in school out of 33 I’ve so far lived isn’t enough already? You’re telling me I need to spend a grand total of over half my life in school? Hoe economically feasible is that? Seriously!

Talking to boomers is like pulling teeth. It’s in general bad for your mental health. Best to avoid whenever possible. I’m finding I’m much happier whenever I do.

So, stop. The chickens want you. — Garth

#197 bdy sktrn on 04.24.15 at 4:32 pm

#197 Mom’s bank on 04.24.15 at 4:12 pm
Oh and by the way.. this Spring market is the peak for 604 and 416 RE.
———————————
and we should believe this when even the great GT made the same call in 2011 (5 years ago) and since then 604 houses are 30-40% higher
“As the snow melted it was obvious this Spring market would be a bust – even in desperately delusional places like Vancouver, or the GTA mega-market.”

And the Spring of 2012 was poor. Best do some research before you embarrass yourself further. — Garth

#198 Shawn Allen on 04.24.15 at 4:33 pm

Did it all himself?

saskatoon on 04.24.15 at 2:36 pm

#17 Income Splitter

dude…why are you saying thank-you for getting back money that has been forcibly taken from you?

stockholme syndrome.

**************************************
Saskatoon apparently made all his money himself. He received no benefit whatsoever from the system of laws and government and rules and all the things that make a functioning economy. No benefit from government infrastructure such as roads. None from the medical system either, not in the past, present or future.

Therefore his share of income tax was forcibly taken from him.

Clearly unfair in his particular special case.

#199 gut check on 04.24.15 at 4:57 pm

@ #155 CalgaryRocks on 04.24.15 at 10:46 am

********************

I got goosebumps listening to that.

#200 saskatoon on 04.24.15 at 4:58 pm

#200 Shawn Allen

wow!

i thought “income splitter” had it bad…but you got it worse.

#201 Ronaldo on 04.24.15 at 5:07 pm

#192 Daisy Mae

”Sounds like a plan. If the younger generations aren’t happy with their lot in life, they should DO something about it and stop shifting blame. No one is responsible for making anyone else happy….”

Right on Daisy. Do you get that DonDWest?

#202 Josh in Calgary on 04.24.15 at 5:08 pm

Of course. Exactly what I said on Tuesday. Oh, ye of little faith… — Garth

I believed you ;) The link was just in case others didn’t.

#203 What about CMHC? on 04.24.15 at 5:22 pm

Calgary Herald argues: REIT better than Calgary condo!

http://calgaryherald.com/business/real-estate/reit-outperforms-condos-for-calgary-investment-in-real-estate

#204 DonDWest on 04.24.15 at 5:24 pm

#139 Ben

Bravo!

Someone who gets it. The baby boomers have created a feudal system here in Canada.

#205 Washed Up Lawyer on 04.24.15 at 5:40 pm

#206 DonDWest on 04.24.15 at 5:24 pm
#139 Ben

Bravo!

Someone who gets it. The baby boomers have created a feudal system here in Canada.
*******************************

Prolonged. Not created.

#206 Trading Naked on 04.24.15 at 7:11 pm

In my quest to determine where the CRA draws the line between investing and trading, I first read/heard a lot of hearsay, legends, and rumours online and in-person. And then I read the interpretation bulletin for capital gains. And then I got confused, so I talked to some accountants. Here’s my unqualified take on how the CRA determines whose TFSA needs auditing and whose doesn’t:

The CRA’s job is to collect tax on earnings. If you’re the kind of knob who’s churning your TFSA to end up with 2% at the end of the year, they don’t care. They can’t tax earnings if the earnings aren’t there.

Now let’s say that you have a full-time non-financial job but you also actively trade your TFSA. And let’s say you’re good. So the CRA takes a holistic approach. How much tax are you paying at your worker-bee job? Is it enough? What’s the % gain of your TFSA? And how did you get there? I bet they have statistics on gains of all TFSA’s and they compare you against all other TFSA holders.

The CRA’s goal is to ensure that we all pay our “fair” (I know this term is debatable!) share of tax. They get interested in TFSA gains at the six-figure level because – cha-ching! – there may be an opportunity to collect tax revenue. If you’re a markets professional, you have an unfair advantage over a worker bee because you have the skills, the time (because it’s your “job”), and the knowledge to do advanced things to your TFSA to make it grow faster than the average account. How your TFSA will be taxed probably depends on what the rest of your tax picture looks like.

Such cases are so atypical that I think you blog dogs have nothing to worry about.

#207 Ben on 04.24.15 at 7:22 pm

DonDWest – I’m with you brother. We shall prevail.

#208 Mach on 04.24.15 at 10:27 pm

Be aware if you retire with money in a corp that becomes inactive it will probably be reclassified as a passive corporation with the tax rate rising to 46%. This is not a valid strategy. Also know there is zero net tax to be saved by pulling cash flow as dividends rather than as earned income. All you are doing is having half the tax paid by the company and half by you, rather than allowing the corp to deduct all of your salary. — Garth

—————–

1) I believe in most cases dividends are still a little more tax-advantageous, due to savings on CPP, etc. It is not perfectly even with drawing salary. Of course when you have a salary, you create RRSP contribution space, which might be desired.
2) What is the best strategy then Garth, for incorporated individuals?