Human nature is the enemy of financial success. We’re emotional, easily swayed by the opinion of others, so we suck when it comes to success. When others rush in and prices rise, we follow. When people retreat and things decline, we hide. Invariably we buy high and sell low. It helps explain why just thirty-six million people have $2 trillion in household debt, why a fifth have nothing saved, 70% are worried about retirement but doing squat about it, home ownership rates are extreme yet houses are unaffordable.

People usually fail because they’re financially illiterate and make bad decisions. But, being human, they shift the blame.

In Canada, after a decade-long real estate orgy in which families loaded up on debt as never before because it was so cheap, forcing house prices to record levels, a crap property in a big city like Toronto, Mississauga, Vancouver or Victoria costs $1 million. It’s an economic and social morass. A crisis, even. Billions that should be saved, invested and put aside for decades to come are being plowed into a single asset. Young couples are shut out. Children delayed. An unsustainable situation created.

And we did it to ourselves.

This blog has told you for years what’s happening, and why. House lust, illiteracy, greed, speculation, FOMO and an unhealthy attitude towards debt created this mess. It was not guys from China, Iran, Seattle or some other province. It was you.

The proof is now in.

BC’s the epicentre, where politicians got elected telling voters that foreign buyers were responsible for stupid house prices. By taxing them into oblivion, the new government said, prices would fall. Middle class people could buy again, just like it was 1985. That was despite evidence locals were responsible for 95% of transactions across the province. But sometimes facts don’t matter. So eight in ten citizens blame others, not themselves.

The foreigners, scant before, are now gone. In the first six months of 2018 offshore buyers all but disappeared from the Lower Mainland, where 99% of property transactions were local-to-local. Across the entire province the number of non-residents purchasing real estate was a paltry 1.9% – down from an insignificant 3.3% at the end of 2017. In half a year there were fewer than 250 sales involving foreigners. Compare that to 35,600 sales in 2017 in Vancouver alone.

So have prices dropped, even as the real estate market’s been rocked by higher anti-Chinese taxes, mortgage restrictions, a speculation tax on Albertans, an empty-houses levy penalizing part-time residents, a special tax on more expensive homes and an open anti-foreigner campaign including calls for a total ban?

Nope. The benchmark price in Vancouver, at $1.093 million, is 10% higher than a year ago and has hardly shifted all year. Yes, sales have dropped – but far more than the total number of foreign buyers. Meanwhile condo prices have inflated dramatically and detached values fallen – entirely consistent with a population base that can no longer afford its own housing. As sales fall, listings rise. Existing owners, in other words, cannot find buyers willing (or able) to pay. These people are priced into their own properties, while the buyers are priced out.

Meanwhile the fiction continues that external factors caused this mess. Insights West found 84% of Van residents blame Chinese dudes for a housing crisis. It’s a finding the pollster himself called “misguided.”

This weekend I received the note below from Angela.

“I am 30 years old, no debt, $20,000 saved. Once my career gets going, I am expecting to be bringing in $3,000 after tax a month. My boyfriend should soon be matching that. My salary is on a grid and hopefully will work its way up to close to $100,000 in 6 years.

“I am not against renting, when I tell people this is my plan once my income is more steady (currently I am supply teaching), they look at me all sad (puppy dog eyes and all). I am very educated and am working on a second math degree, I am not stupid and understand numbers, something most of them do not. I know renting is the key to being financially stable, but is it for the rest of my life? At what point can a couple or family own a home without digging themselves in a hole they can never escape?”

Given what people have done to themselves, Angela, given the debt they have swallowed, the rashness of their actions and the gamble they have taken, you’re on the best path. This market will not last. The emperor has no clothes. The gasbag will deflate.

The cost of money will continue to rise, household finances will degrade, confidence will falter and house prices will correct. With nothing but air underneath and equity blowing away, there may come a day people wish they hadn’t shamed those who wanted to move here and be their neighbours. But I doubt it.

It’s political

RYANBy Guest Blogger Ryan Lewenza

In my opinion the political environment has never been as partisan and divisive as it is right now. This is particularly true in the assessment of the economy and stock market. For example, many of those on the left believe that President Trump simply inherited a strong economy and that his policies have done little to influence the strength seen in the last year and a half. While many of those on the right believe that President Trump is their economic saviour and that his policies are the sole driver of the recent strength. As I’ll show in this blogpost both of these viewpoints are flawed and stem more from one’s political beliefs than of a sound and unbiased assessment of the facts and statistics. At Turner Investments we believe strongly in balance. Both in one’s investment portfolio and in one’s political beliefs.

Let me begin by stating that people often give too much credit or blame to presidents (or Prime Ministers with washboard abs) when it comes to the economy and stock market. The reality is there are many factors at play, such as interest rates, the business cycle, corporate profits etc. that help drive the economy and markets. A president’s policies can definitely have an impact but it’s arrogance to believe that he/she has that much control over a US$20 trillion economy.

Having said that let’s compare the first 19 months of Trump’s presidency with the last 19 months of Obama’s and see what the hard data says.

Since President Trump took office the US economy and stock market have clearly accelerated. For example, US GDP growth has averaged 2.4% Y/Y under Trump’s leadership versus the 1.8% Y/Y average under President Obama in his final 19 months. The US stock market has also benefited under President Trump with the S&P 500 returning 17.3% annualized versus 8.8% under Obama. Two gold stars for Trump!

However, one important area where things have not significantly improved under Trump is in job growth. He may not want to hear this given that he once boasted “I will be the greatest jobs president that God has ever created.” Modesty is clearly not one of Trump’s strengths! Since 2017 the US economy has added a solid 3.7 million jobs, slightly below the 3.8 million jobs created under Obama in the preceding 19 months.

As I’ll cover shortly Trump definitely benefitted from inheriting a strong US economy but the facts are, the US economy and stock market have improved under his leadership, which shouldn’t be a surprise given his pro-growth policies of lower taxes and deregulations. As much as it might pain those on the left to hear this, it is demonstrably true that the economy has improved under his leadership and for that I believe Trump deserves some credit.

Now before readers jump to conclusions and claim that I have a lovefest with Trump, this is definitely not the case as I disagree with him plenty. Also I believe that he’s had some real luck on his side (unlike his casinos, university and airlines etc.) with the US economy already doing quite well when he took over.

President Obama became president just as the US economy was enduring its most challenging downturn in nearly a century. The economy was teetering on the edge of a complete financial meltdown and he along with congress made some bold policy decisions that helped rescue the US economy. This is largely why we are where we are today. The Obama administration implemented policies like the American Recovery and Reinvestment Act, bailed out the US car companies saving hundreds of thousands of jobs, and enacted critical financial reforms that helped restore confidence in the finance sector. Most importantly, he helped lead the US economy out of the doldrums and into the second longest economic expansionary period (now its 110th month) since 1950.

Those on the right who dislike President Obama and his leadership are clearly entitled to their views but they are not entitled to their own facts. Over President Obama’s two terms the US economy created over 10 million jobs, which helped drive down the unemployment rate from a high of 10% in 2009 to 4.7% at the end of his presidency. And over this period the S&P 500 rallied an incredible 193% or 14.4% annualized. Not a bad economic legacy if you ask me!

Below you can see how the unemployment rate steadily declined under President Obama and how it has continued under President Trump. This illustrates why I believe President Trump inherited a strong economy. Yes, Trump’s policies have contributed to the gains, but to say it’s been solely due to him and his policies is not supported by the data. Nonetheless, I believe both deserve some credit for this great achievement.

US Unemployment Rate Under Both Presidents

Source: Bloomberg, Turner Investments

Now before you anti-Obama readers slam me for missing half the story, my one key complaint with Obama has been the doubling of US government debt over his tenure. Below I chart out US government debt, which doubled under President Obama from roughly US$10 trillion to US$20 trillion by the end of his term. As a percentage of GDP, debt increased from roughly 60% to over 100% currently. Sure some of this can be blamed on the financial crisis, but Obama (and congress) made little attempts to rein in spending and balance the books.

That said, the Republicans cannot take a victory for being parsimonious as US debt doubled under President Bush and deficits are skyrocketing under Trump and the current Republican congress. Basically, neither party is willing to address the excessive spending and deficits since that’s now how politicians get elected these days.

US Government Debt Levels

Source: Bloomberg, Turner Investments

Look I’m not trying to sway anyone’s political views with this blogpost. Whether you stand on the left or the right, that’s not the point. What I am trying to do is highlight the hypocrisy and partisanship behind many political views, particularly in the assessment of the economy. As a financial analyst I try to remove my political biases in assessing the economy and making forecasts, which I have found has led to better financial outcomes and performance. That’s the key point.

Ryan Lewenza, CFA,CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.