Juggling Dynamite

This statement on a real estate agent’s blog last month caught my eye:

“In Canada, the middle class are relying more on real estate agents for retirement advice than licensed financial consultants.” –March 3, 2017

Since our homes represents the lion share of net worth for Canadian families, this statement is undoubtedly accurate.  It’s also true, that realtors and mortgage brokers (aka “mortgage architects”), like the vast majority of those working as financial consultants/investment advisors today, are licensed sales people who earn fees on transactions, and owe no fiduciary duty to put the best interests of their customers ahead of their own profits.

We also know that a frenzy of borrowed money, speculation and money laundering has driven a massive surge in price and transaction volumes over the past few years.  The cash flow running through the broker/dealer/financial sector has boomed along for the ride.  But for all their self-proclaimed expertise and savvy, as this cycle moves toward its inevitable conclusion, the defining question, as always, will be this:

How many realtors/mortgage brokers/financial ‘experts’ used the boom period to pay off their own debt and build up cash? Rather than the opposite?

The answer as usual, will be, not many.  As the bubble tide recedes, truth will be revealed once more.  As cash flows plunge, foreclosures and loan/lease defaults rise, repo men will be coming to take back a fleet of the fanciest autos and gizmos.  Lawsuits, investigations and charges for illegal activities will follow.  Same story, every cycle.  Stay tuned.

Former California Governor Arnold Schwarzenegger (R) was on The Messy Truth with Van Jones last night and explained why he couldn’t vote for Donald Trump. Refreshing when people stand up for the issues that matter to all of us, rather than just mindlessly endorsing party heads.

This segment on immigrant workers in California’s food belt was also insightful.

CNN’s Van Jones spoke with farmers in California about their fear that the fields will be raided by federal agents and they will lose their workforce of undocumented labor.

The longer/further price gains go above the long term average (5% a year line below) the longer/further they will spend laboring beneath it.  Moonshots like the past year over year move in Toronto prices, is a 4 standard deviation event above the long term mean, and that’s a bad sign.  This chart since 1990, offers some insight on scope and scale.  The payback period after this one, is set up to be long and hard, potentially unprecedented.

Unfortunately madness and mayhem is not “contained” to Toronto. The ‘average’ Canadian home price nationally is now about $613k or nearly 8 x the average national household income–the long term multiple generally considered healthy/affordable/sane is 3x household income.  Froot Loops anyone?

For many, the dream of home ownership has become a nightmare of extreme indebtedness and insufficient cash flow to cover living expenses never mind savings for the future. The resulting deficits will be a problem for families, businesses, social programs and taxpayers across the country.  Read the below table of gains over just the past year, and weep.  Much pain and suffering lies ahead when our debt-addicted nation goes into rehab once more.  See:  Home price surges across the GTA in March.