Entries from March 2019 ↓

The flop

It’s been a week since the federal budget. Remember that? Most people don’t. Too bad for T2, since this was the big channel-changing event to prepare for the federal election seven months from this week.

The centrepiece was the CHMAP, of course. But it looks like the Canadian Horny Moister Assistance Plan is destined to be another federal flop.

At first industry analysts said the shared-equity mortgage strategy would boost sales by maybe 5%. Then we heard it would help moisters shop for properties priced up to $600,000. Then came word the plan’s so good home sales would be depressed until it clicks in – September.

Well, forget all that. As details of this thing trickle out (since the budget was purposefully vague), it’s clearly a road apple. Big zero. As void and desolate as Kevin O’Leary’s pate. If the intent was to suck up to Millennial voters in the GTA and LM, this is a fail. Here’s why…

First, a SEM will only be available to couples/people with a household income of $120,000 or less. The maximum mortgage under the plan, which includes the insured mortgage plus the federal kick-in, cannot exceed four times income. So, all-in, this means a max property purchase price (for buyers with a 5% downpayment) of just over $490,000. Good luck finding a house for that amount in the big city. Plus the shared equity loan amount on resales is 5% – the 10% figure thrown around a lot applies only to new-builds.

The irony is a couple with a $120,000 income not taking up the SEM offer qualifies to buy a property valued at almost $560,000 (and give up no equity). Not only would people buy less house under the CMHC plan, they’d have to give up a portion of any equity growth in the future when they sell. The finance minister has made it clear a property purchased using a SEM will result in Ottawa sharing in any capital gains, as well as repayment of the loaned amount.

More to consider: with a SEM, the government (through CMHC) will be on title as partial owner of your house. However don’t expect the feds to pay any of the land transfer tax or routine household overhead. Plus you’ll have to foot the extra legal costs of a more complicated deed upon closing. And don’t forget the as-yet unknown complexity, cost or delay involved in applying for a shared-equity mortgage – important factors to understand even before an offer to purchase is made.

No wonder a similar program rolled out in BC by the last government crashed and burned. Only 20% of the expected applicants materialized there, and it was finally put out of its misery. A fair guess is that six months from now, when the SEM is finally available, it will be a nothingburger to the market.

And how about the other big budget reform, allowing RRSP withdrawals of up to $35,000 (or $70,000 per couple) for a down payment?

That increase of ten grand is also unlikely to goose the market, based on experience to date. Apparently just 20,000 people a year have been using the current $25,000 allotment – or a mere 6% of first-time buyers. The other 94% don’t have RRSPs, don’t want to fuss with a 15-year payback schedule or understand that retirement savings are, doh, for retirement.

Sorry, Justin. This was not a cannabis moment.

My, my. Remember when bond yields in the US were hitting 3% and the resident flock of Chicken Littles was forecasting The End as central banks went wild with tightening? Well, now yields are tanking. The 10-year Treasury sank to 2.35% this week, and the chicks are at it again – this time saying recession is nigh as central banks get ready to ease.

Remember what CBs do. When an economy is firing on all cylinders, jobs being created, inflation rising and wages pressures growing, the bankers throttle back by hiking rates, making money more expensive, curtailing consumer borrowing and spending. That just took place – 9 increases for the Fed and 5 for our guys. But when an economy gets old and tired and starts heading for contraction, the bankers inject stimulus by dropping the cost of money so fools will use cheap mortgages to acquire real estate they can’t afford. The former is called tightening and the latter is easing (and house lust).

So here’s the news: the market is now giving odds the Fed will drop rates by at least a quarter point by the end of 2019. This comes after an inversion of the yield curve – which basically means savers are screwed.

A recession in 2020? Just in time for the Trump re-election campaign?

Don’t count on it. More on that soon.

Real money

Dorothy lusted for three ginger cookies. ‘Make it six,” I said, feeling flush and manly. And six it was.

“That’s eight dollars,” said Amy, the pigtailed woman who stood on the other side of the folding, groaning card table at the farmer’s market. A twenty was presented. “Wow,” she said flatly. “it’s paper.” And so it was, not the plastic kind, and not what she wanted. “I can square that,” she said sweetly but firmly. Amy handed me her iPhone with a card reader stuck on the top. “It’s safer.”

We swiped.

Money, the folding kind, is endangered. It gets lost. People steal it. Currency is a medium for the exchange of germs, dirt and even wee bugs. It tears, burns and melts. It costs money to take the money to a bank. They don’t want it, either. You have to count it, separate it, record it, bundle it and worry about it. Get too much of it, and you’re accused of being a criminal. Money launderer. Dealer.

No doubt about it. Cash money’s déclassé. The stuff rubbies and day workers convert from cheques at a payday loan store so they can drink, smoke and womanize. The rest they waste.

I mean, have you ever seen a Millennial with a pocket full of cash? Or entering a bank to get some? Folding money is generational, paleo and disparaged. These are the PayPal, ApplePay, tap-and-go, e-transfer, debt/credit card times when the whole notion of money is changing. Normal people don’t get paid with cash or cheques, but by direct deposit, from which bills are dispensed online. It’s possible to go days, weeks and years never touching an actual bank note. In fact, cashless is now a retail thing.

It’s getting more common (especially in the US) for stores to refuse cash, coins or hard currency of any kind. Nobody can rob them at night or wear a balaclava and demand, ‘Empty that till.’ There’s no employee time spent counting bills or making change. No armoured truck or guys with holsters showing up to cart it away. No staffer is endangered by having to carry a bag of it to the bank. No safe. No temptation for a worker to Hoover off a few twenties. No counterfeit bills. No cash registers or drawers.

In the States there are cashless stores, toll roads, stadiums and airlines – plus the exploding online marketplace which is 100% digital-pay. Folding money grows unloved, unused and actually controversial.

Cashlessness is being banned in a growing number of places. New Jersey and Philly, plus (soon) NYC and Washington.  The argument is that replacing hard money with the virtual kind makes life tougher for lower-income folks who may not have a bank card, credit card or smart phone with apps. Apparently 17% of black households in the US lack a bank account, for example.

But Canada seems ripe to go completely cashless. The Canadian Bankers Association says only 1% of us don’t have a bank account. Over 90% claim banking is better now because of new technologies. And 76% of us do our banking online. In fact the CRA doesn’t even want you to pay your outstanding taxes at the bank anymore. This country leads the world when it comes to embracing cashless technology, with Sweden at No. 2.

So, do you carry cash? Do you have a shoebox of it at home? In a freezer bag? Toilet tank?

Besides being fragile, dirty and dangerous, cash has big advantages. It’s still there when the lights go off or the servers crash. Bank of Canada official Tim Lane puts it this way: “Cash works even when the systems are down, when the power goes out and people can still make payments using bank notes. Second, bank notes offer privacy for your transactions. You can use them without giving anyone your personal or your banking information. Using cash avoids the risk of being hacked or having your card compromised.”

Exactly. This could get dangerous.

When you can’t buy six damn cookies with a bill, we’re halfway there.