Karma

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.