Juggling Dynamite

According to Statistics Canada’s 2024 population estimates, there are roughly 9.3 million Baby Boomers in Canada (born 1946-1964), now aged 61 to 79, and comprising 23% of the population. The final 25% of the group (2.2–2.4 million, born 1961-1964) will be turning 65 over the next three years (2026-2029).

Similar ratios apply in America, where the latest U.S. Census Bureau counted 71 million Baby Boomers, and the last quarter of them (15–17 million, born 1961–1964) will turn 65 from 2026 to 2029.

In other words, by 2030, the entire Boomer cohort will be over age 65.

Recent studies (from BMO, RBC, and Angus Reid) report that roughly half of unretired Canadian homeowners plan to sell their primary residence (fully or partially) to fund their retirement — significantly higher than the 36–40% reported a decade ago.

A similar Re/Max poll conducted last year found that one-third of Canadians are relying on their home as their only financial plan for retirement.

Reliance is highest among the youngest boomers (turning 65 over the next three years) and Gen X (about 8 million Canadians born 1965–1980, turning 65 from 2030-2045), who often have high home equity but inadequate registered or workplace savings.

These trends are related. Because home prices inflated much faster than incomes over the past 15 years, Canadians have borrowed more and saved less for retirement and other needs. In the process, home equity has become the dominant household asset, and it comes with high property taxes, maintenance, and utilities.

The need to reduce overhead and increase capital encourages the masses to see housing wealth as retirement savings, even though it’s illiquid until sold.

AI astutely summarizes the implications of these dynamics as follows:

• Concentration risk: Many Canadians are effectively “all-in” on one asset class (residential real estate), leaving their retirement income dependent on future housing market conditions.
• Timing risk: If selling coincides with a soft market (e.g., during rate-cut recessions or demographic downsizing waves), expected proceeds may disappoint.
• Policy implications: As the population ages, more simultaneous home sales could increase housing supply and weigh on prices in certain regions (e.g., Ontario, BC).
• Advisory takeaway: For portfolio managers, it’s crucial to help clients model realistic after-tax, after-transaction net proceeds and consider diversification well before they need to sell.

If you’re counting on the equity in your home to finance your retirement, then you’re vulnerable to declining property values. At the same time, non-housing retirement savings are also exposed to a dangerously inflated financial market bubble.

Simultaneous bubbles are a brutal landscape, especially for those in or within a decade of retirement; see, While we fret over a stock bubble, the one in housing has already burst:

Perhaps the stock market is in a bubble that will end badly. Meanwhile, many Canadians are enduring a correction that is already taking a toll on their financial health.

Home prices in Canada have been grinding lower for 3½ years and counting. And still, the long-awaited rebound has yet to materialize.

…From January, 2005, up to the housing market’s peak, the average home price more than tripled in Canada, topping out at about $820,000.

One side effect of a two-decade property boom is that it increasingly put Canadians’ homes front and centre of their finances.

Even after the correction, real estate accounts for more than 40 per cent of total household assets, according to Statistics Canada data. (It peaked at 46 per cent, see chart below).

Even though Canadians have record high levels of stock-market exposure, equities make up just 26 per cent of the average Canadian’s total assets.

Clearly, Canadians’ financial well-being is much more dependent on the housing market than the stock market.

This is especially true of lower and middle-income Canadians, since stock ownership is heavily skewed to wealthier brackets.

Understanding where we are is critical in planning for where we hope to be. Resisting groupthink and proactively managing risk are highly recommended.

The US central bank cut its policy rate on Wednesday, and US mortgage rates rose.

Layoffs are surging, and loan delinquencies are driving a repo boom not seen since the 2009 recession. See, We Spent the Night Shift With the Repo Man, Who Is Busier Than Ever:

An estimated 1.73 million vehicles were repossessed last year, the most since recession-wracked 2009, according to automotive-service business Cox Automotive. There are signs the surge continues: This year’s repo volume at Cox’s Manheim auctions unit was up 12% through the end of September compared with the same period last year.

“It’s like history repeating itself,” said Detroit repossessor George Badeen, president of Allied Finance Adjusters, a trade group. Pandemic-era consumer protections left the repossession industry idling. Now, he said, companies are “making money because of the volume, it’s so big. You’re in a target-rich environment.”

The University of Michigan Consumer Sentiment Survey (below since 1975) is registering the gloomiest outlook since the pandemic and 2008, before that (shown below courtesy of Rosenberg Research).
Analysis finds that 82% of Americans live in a region experiencing economic contraction, the worst since the 2020 pandemic and the 2008 Great Financial Crisis (shown below since 2006).The housing market is dumping because it needs humans with sufficient incomes to buy and rent. Artificial Intelligence (AI) doesn’t need the homes, consumer goods or services that drive 70% of economic growth.

Forty-one companies in the AI space now make up nearly half (47%) of the S&P 500 market value–a new record (below since 2022, courtesy of Jim Bianco). Our collective chips are increasingly on this bet.We know that AI is costing a fortune, but how will it pay our bills?

Nearly 2 million Americans have been unemployed for 27 weeks or more, according to recent federal data, and layoffs are growing daily as companies look to slash overhead.

Amazon said this week it would cut 14,000 corporate jobs, with plans to eliminate up to 10% of its white-collar workforce. United Parcel Service said it had reduced its management workforce by about 14,000 over the past 22 months, and Target is to cut 1,800 corporate roles.

Earlier this month, Rivian Automotive, Molson Coors and General Motors all announced white-collar job cuts.

All of this is happening with financial conditions among the easiest in history, and corporate profits clocking record growth. Financial markets are expecting more central bank easing, but it’s unclear how that will stem the rising unemployment. See, Tens of thousands of white-collar jobs are disappearing as AI starts to bite:

Even as the economy grows, hiring has weakened, with economists expecting slower job-creation this fall. In such an environment, companies are becoming choosier—and both experienced white-collar workers and new college graduates seeking their first jobs are getting squeezed.

Mike Hoffman, chief executive of the growth advisory consulting firm SBI, said in the past six months he has cut his software-development team by 80% while productivity has surged. “We have someone managing clusters of agents that are doing coding,” he said. “Our AI writes its own Python.”

Investors are pressuring companies to streamline operations, Hoffman said, seeking head-count reductions as steep as 30%. Executives should ask themselves whether they can do so and whether it is the right thing to do, he said.

On Monday, the online-learning company Chegg said it would cut 388 jobs globally, about 45% of the workforce, as it pivots to an AI model that automatically answers students’ questions.

Meanwhile, opportunities for front-line, blue-collar or specialized workers are growing.

While pausing hiring for consultants and managers, laying off staff in retail and finance, and deploying AI to do work in accounting and fraud monitoring, companies describe shortages of trade, healthcare, hospitality and construction employees.

Manufacturing and processing are one thing; humanoid robots are a tougher nut to crack.

The 1X Neo can do the dishes, clean the kitchen, even fold laundry. WSJ’s Joanna Stern spent time with the humanoid—and its creator—to see what it can really do and how much still requires a human operator’s help. Here is a direct video link.