Who will be able to afford the boomer’s pricey homes?

This is precisely the discussion we have been having at our weekly coffee group for a couple of years now…

The credit bubble has enabled a massive build of large, expensive homes all over North America–especially in Canada–and other countries like New Zealand, Australia.  It’s not just that market prices are outrageous (enabled by 30 years of falling interest rates and rising debt), it’s also the insurance, taxes, cleaning, repairs, yards and other upkeep costs.  While people are physically able they may do lots of the maintenance themselves.  While still working, they may not mind hiring services to help.

But once retired few will want (or be able, see: The high cost of low interest rates on savers) to expend big outlays to maintain their house; let alone a house, a cottage and a ski chalet.  With most of these properties currently owned by the age 50-70 category, the obvious question becomes, who in the world will buy all these high-end properties from the boomers and at what price?

For those who think this won’t become an issue for years yet to come, it might be time to think again.  See Canada’s housing market faces looming demographic bubble:

“Older boomers are putting their houses up for sale, but they aren’t getting the offers they expect. So they take their houses off the market. Meanwhile nearby houses built on spec are selling at sharp reductions, as builders — and their backers — are forced to sell to get their money out.

“The baby boomers thought they had lots and lots of time,” Macbeth says, but the decline of the Alberta resource sector suddenly moved everything forward.

Rabidoux foresees something similar coming in Ontario, but the relative decline will depend on what kind of house and where it is located.

“You drive through the countryside, and in the middle of nowhere you’ve got this sprawling, 4,000-square-foot brand new house,” he says. “They’re everywhere.”

Rabidoux expects those rural monster homes will be some of the hardest to sell as boomers age and no longer want the responsibility of managing such properties. For the generation coming after, he thinks those houses will be impractical and unaffordable at current prices.”

Over the next 5, 10 and 20 years, the big demand push will no doubt be for smaller, more efficient, green, easier to maintain, but still luxury amenities, housing. That’s a no-brainer. But in order to move there, boomers will still need to sell their current monstrosities. A lack of able or willing move-up buyers is the problem. Perhaps renovating today’s large single family properties into multi-family units will be part of the solution.

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Water takes precedence

The most valuable commodity on earth is fresh water. Depleting finite water supplies to extract less critical commodities is short-sighted and unsustainable. This reality will increasingly dictate our policies and procedures.  It’s quite literally adapt or die.

The future price of copper and the growth of companies that produce it could hinge on a single precious resource: water.

Mining the important industrial metal requires huge volumes of water to control dust and separate copper from the earth. But a seven-year drought enveloping Chile, the world’s largest producer, is forcing big miners to curb output and pitting them against small communities like this one high in the Andes.  Here is a direct video link.

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Honeymoon over: disgruntled capital leaving Canada

Interim rallies notwithstanding, the Canadian stock market continues to come down from QE-inspired delusions.   The below chart since 2013 shows the story.  The black line is the TSX 60 market cap-weighted index (dominated by today’s most expensive companies so financials make up 40%) and the red line is the TSX 60 equally-weighted index (all 60 companies represented in equal weights so financials make up just 15%).

TSX cap weight vs equal

By stripping out the overweight in financials, we can see that the Canadian stock market has now round-tripped back to where it was in December 2013.  Some of the capital fleeing falling sectors like energy and materials rotated into the last standing ‘hot’ sectors over the past two years (dividend-paying, REITS and financials).  This only made these few still over-loved companies even more over-valued and dangerous for the capital bet there.

Beyond sector rotations, over the past year both foreign and domestic capital flows have been leaving the loonie and Canadian securities at the fastest pace of the 10 most developed markets.  The world’s love affair with Canada and our commodities is ending in a painful divorce. It is likely things will get a good deal worse in the months ahead.


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Renewable energy solutions, here for the capitalizing

Another day and more oil-funded terror coming out of the Middle East.  Even though the area and North Africa boast astronomical solar power, these petroleum-based economies have traditionally captured little of it in preference for the production of more expensive, dangerous and damaging fossil fuels.

One of the supreme ironies in all of this, is that accelerating climate change and rising temperatures are rapidly making the area itself uninhabitable: droughts, war and now a recent scientific study predicts the region will face heatwaves “beyond the limit of human survival” if climate change remains unchecked.

Fortunately many people and companies are seeing massive opportunity and rolling out smart solutions like never before.  For the first time ever, renewable energy solutions are taking center stage at the UN climate conference in Paris next month. See Renewables are changing the climate narrative from sacrifice to opportunity:

For oil-producing nations that use a substantial share for power generation, solar is increasingly the quickest, least-risk investment to add export capacity and revenue while satisfying rapid demand growth for electricity.

This shift is causing huge development and investment across the region. Morocco is building the world’s largest concentrated solar power plant, which will provide half the country’s energy by 2020. The UAE is building what could eventually be one of the world’s largest solar photovoltaic plants. Additional projects are in the works in Egypt, Jordan and Saudi Arabia.

The opportunity inherent in this shift is clear. A soon-to-be-released analysis from Irena finds that meeting renewable energy targets inBahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE would annually decrease fossil fuel consumption by 25% per cent in the water and power sector.

It would also cut water consumption by 20%, which is crucial in a region where fresh water is scarce, and likely to become even more so as a result of climate change. Generating solar power withdraws 200 times less water than a coal power plant to produce the same amount of electricity. Wind power requires no water at all.
Solar panelsThe solar plant Shams 1 in the desert of Abu Dhabi, the United Arab Emirates. Dramatically falling solar PV costs and visionary commitments by governments in the Middle East and North Africa are changing the economic equation of renewables.

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Commodities slump as greenback ramps

As the US dollar index flirts with 100 and copper falls towards $2.00 a pound today…the challenges for emerging markets, corporate credit and US earnings are mounting into year end.

Bob Janjuah, senior independent client advisor at Nomura, and Bloomberg’s Stuart Wallace discuss the depths of the commodities market slump and how the strength of the U.S. dollar exerts pressure on the market. Here is a direct video link.

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Smart investing can mean not buying

The smartest investments we can make are in the health and education of ourselves and our children. Sometimes it means moving to find better opportunities for work or better schools. Sometimes it means living where we can walk or ride a bike; spend less time commuting and more time with family and friends.

The dream is not things, the house or the car.  The dream is about quality of life. And the revelation is spreading. See: Not buying a home was my smartest financial move.

Not trading our savings for over-priced financial securities is another very wise investment move.

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