Juggling Dynamite

A new report from Realosophy offers good data and insight behind the greater Toronto area (GTA) real estate boom and sudden deflation over the past year.  See A sticky end:  lessons learned from Toronto’s 2017 real estate bubble.

As charted below, after nearly doubling in 4 years between Jan 2013 and March 2017, median home prices in the Greater Toronto Area fell 18% in just four months– and much faster than declines seem in the most frothy US markets after that cycle peaked in 2006.

It’s worth noting though, that declines in the most over-valued US cities–like Miami, Las Vegas, Phoenix and others–took several years to complete and only after median prices had fallen about 60%. It is doubtful therefore, that the most over-valued property markets in Canada will get away with just the quick 18-20% price correction to date.  Stay tuned.  As the Realosophy report reminds us, cyclical housing declines tend to be elongated by sellers slow to adjust their asking prices:

…In equity markets, prices adjust immediately when demand falls. In real estate markets, a decline in demand is typically accompanied by a rise in inventory followed by a slow decline in prices. Sellers are typically slow to adjust their prices down for several reasons: Firstly, sellers have a tendency to want the peak prices gained by their neighbours and are prepared to wait longer as accepting anything less is perceived as a loss. When sellers do reduce their prices, they’re more likely to reduce their price very gradually, hoping to find the right buyer (Case and Shiller, 2003).

While it is true that price declines over the past year have already cost sellers an estimated $136 million, on the bright side, we should appreciate that it has also saved buyers from spending and borrowing those same extra millions for shelter.  And this frees up more of their cash flow for increased savings for retirement and consumption.

Lower prices are part of the healing process necessary to restore a healthier social equilibrium and sustainability for the Canadian economy.  We should welcome this needed adjustment cycle.

Forced savings is necessary for the future stability of workers, retirees, the broader economy and our tax system.  The state of Oregon recently joined four other US states in requiring employers to automatically enroll workers in a retirement savings plan.  This is a step in the right direction, but the second critical part of the equation is to keep capital risk low and protect the funds from trust abusing financial sales firms.

More than 30 million full-time workers don’t have access to a retirement plan at their workplace, nor do millions of part-time or independent contractors. Oregon is among five states in the country now requiring employers to automatically enroll workers in a Roth IRA retirement savings plan. Employees can opt out, but if too many do, the plans could fail.  Here is a direct video link.

I am just reading Rich Roll’s book “Finding Ultra” and highly recommend it.  His interview in this recent #EatForThePlanet podcast is also worthwhile.

If you are interested in the wellness space, you are likely familiar with Rich Roll. If not, Rich is a 51-year-old, vegan, ultra-endurance athlete (and we’re guessing you’re probably already pretty impressed by that sentence alone), who is also a bestselling author, host of a highly popular podcast, boasts over 140,000 followers on Instagram, oh and he was recently named “The World’s Fittest Vegan” by Men’s Health Magazine. In the world of wellness influencers, Rich stands above all the rest, known for not only his remarkable athleticism but also his unique and disarmingly honest brand. Today, Rich lives in southern California with his family and says his life is an “embarrassment of riches.” But if you met him about a decade back, you would hardly be able to recognize him.   Here is a direct audio link.