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Life Real Estate Wealth

Canadians are Not Happy

A recent global happiness survey conducted by the World Happiness Report has shown that Canadians now rank 15 on a country by country scale. This is a 5 place drop from Canada’s previous rank of 10.

On an absolute and relative level, the conclusion is simple: Canadians are not happy.

You might argue that Canadians are happier than people in Moldova or India, and you’re probably right. The thing is, people don’t measure satisfaction based on how bad things could be. They compare their standing against others around them. And against their own experiences.

The whole world has gone through lockdowns, Covid deaths and massive lifestyle changes. So if everything were equal, you’d expect the rankings to remain constant. Clearly, Canada is going through something other countries aren’t. The right will blame the left. Left the right. There’s so much subjectivity in these kinds of surveys that who’s to really know.

One thing is clear though. The countries with the happiest citizens are socialist paradises: Finland, Denmark, Switzerland, Iceland and Netherlands. These are countries that take care of their people. Indeed, 9 of the top 10 countries were European.

The anomaly was New Zealand – probably the most European country outside of the EU. Canada used to fit that description.

So what went wrong? The most objective answer I can provide is economic. A growing proportion of Canadians can’t afford one of the most basic of Maslow’s needs: Shelter.

Rents and home prices across Canadian regions with the most jobs are higher than almost anywhere else in the world, in relation to median incomes. Moreover, the unaffordability gap is widening. Every day, housing prices are rising faster than most individuals’ ability to save for a down payment.

It used to be that a nuclear family could live quite well off a single blue collar wage. Today, many Canadians are abandoning the idea of ever having kids – they have nowhere to put them.

I’m not saying these Canadians are living on the street. They’re living with parents and sharing apartments. But they’re doing so way longer than previous generations. With the light at the end of the tunnel shrinking, this dependency on the kindness of others to meet a basic physiological requirement is stressful, and unusual for most Canadians throughout modern history.

When basic physiological needs – like shelter – are not met, people are unable to pursue safety, belongingness, esteem, and self-actualization. They are unable to develop as humans, therefore limiting their capacity for happiness.

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Real Estate

The Death of Toronto’s Middle Class

The middle class in Toronto is dying. Some would argue it is already dead.

With the average home price in Toronto flirting with $1 million, most Torontonians have zero hope of ever affording a home. Nope. Real estate is now the sandbox for the rich and their heirs.

A Millennial or Gen Z with a top 10% income and aggressive savings plan will never afford a home.

Over the past decade, the average annual price increase has been over $51,000. This will only worsen as prices rise at an exponential rate. Indeed, over the past 12 months, the price of an average home in Toronto rose by over $81,000. This means if you didn’t save more than $81,000 over the past 12 months your ability to buy a house hasn’t improved.

Even with an astronomical 50% savings rate, a couple would need to have a gross income of $220,000 ($110,000 each) just to keep up with rising house prices. And they’d have to save/earn considerably more to put a dent into their proportional down payment.

This is next to impossible for families in Toronto – the median family income in Toronto is $86,600, according to Statistics Canada.

Nobody but the ultra rich are able chase home prices, and this real estate reality is spreading throughout Canada. Frankly, this is disgusting and will have a huge impact to the quality of life and stability of Canadian society.

Toronto homeowners are now made up of three classes of people. 1) True middle-class and working class people who bought their house decades ago. 2) The moneyed class. 3) Foreign speculators and money launderers.

Eventually, legacy homeowners will die off or sell their homes to fund retirement and we’ll be left with a housing stock fully owned by the rich. Where will the average person live then? Who the fuck knows.

Working class and middle class people lucky enough to have bought a house decades ago likely have a lot of equity. You’re probably thinking they should just take out a second mortgage and give their kids a couple hundred grand towards a down payment. This is what many people do, but it’s not without massive downside. Effectively, it simply spreads the cost of home ownership across generations. Moreover, it puts people who are approaching retirement severely in debt. The initial intent is that the kids repay their parents, but that’s highly infeasible while they still owe the bank $800,000. Giving the money back to parents might take decades, by which point their parents are working themselves to death to repay their second mortgage and afford retirement. So not only is the middle class collapse hitting Millennials and Generation Z, it’s impacting Generation X and even younger Boomers, who can no longer retire (a component of the middle class dream).

None of this takes into consideration that this massive pile of mortgage debt is balancing on a knife’s edge of low interest rates and presumed real estate price appreciation. Canadians are so indebted that the slightest reversal of these two assumptions can collapse the Canadian economy.

This is everyone’s problem. The middle class – citizenry with a decent paycheque and a decent quality of life – is the glue that holds society together. If the most basic necessity (shelter) is unobtainable – or only obtainable by taking massive risk and to the detriment of every other part of dream – there will be no middle class.

Fairness, justice, economic prosperity, social stability all require a solid middle class (and vice versa). The further stratification of society into a rich minority and poor majority will only lead to a mass population with nothing to gain…and nothing to lose.

Categories
Real Estate

12 Charts: Toronto Housing Market

Despite the worst recession since the Great Depression, Toronto real estate is booming.

The boom isn’t occurring because of affordability. The proportion of income used to pay mortgage principal and interest, property taxes and utilities is approaching the 1989 high.

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The Toronto housing market is bifurcated. Condo listings have risen dramatically, as Airbnb hosts abandon ship. Meanwhile, listings of detached homes have plummeted. Prices have reacted accordingly, with condo price appreciation lagging behind. The median detached home in Toronto has appreciated by 28.2% over the past year.

Despite the difference between listings, months of inventory for both condos and detached homes in Toronto remain very low. Toronto remains a tight housing market.

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The state of the Toronto housing is also showing up in average days on market data. At all price points, home sales in Toronto are actually happening faster than in 2019.

Source: ZOLO.ca

As a result, prices have risen across all home sizes for detached homes in Toronto year-over-year.

Source: ZOLO.ca

Similarly, Toronto condo prices have risen across all sizes, but (as previously indicated) to a lesser extent.

Source: ZOLO.ca

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What happened to the real estate crash everyone was predicting?

While the lockdowns did create a dip in prices across Toronto. Prices have recovered from the dip. Note, however, Toronto got a boost from a hot market going into 2020 before the lockdowns occurred (see the February price increase).

Source: Toronto.Listing.ca

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Government benefits are helping to keep the system whole.

48% of the Canadian workforce is currently receiving CERB (Canadian Emergency Relief Benefit). That equates to over 20% of the population for most provinces, with a huge proportion of beneficiaries residing in Ontario alone.

The question remains: are these benefits propping up the Canadian housing market and can they be gradually removed without creating significant housing market disruption?

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Categories
Real Estate Wealth

Gail Vaz-Oxlade Gets Candid on Home Ownership

People dive into home ownership with eyes half shut. Many do rough budgets and rely on their mortgage providers to tell them what they can afford. But few are prepared for the realities of home ownership.

People step into the housing market with the minimum deposit and the assumption that they’ll soon grow equity. They believe real estate prices always rise, they’ll always have a job and the sun always shines. Few plan for unexpected expenses like leaky roofs and busted appliances. Even fewer plan for unemployment.

Instead, they binge on house porn and the orthodoxy of marble finishes. This sets an extremely high bar for interior design, squeezing the final drops of their borrowing capacity to renovate otherwise perfectly functional living spaces.

All this has worked in the past as house price appreciation created equity that helped people turn their houses into ATMs.

Today, however, incomes have been gutted and about 16% of Canadian mortgages are being deferred.

New buyers entered home ownership with zero bandwidth for financial trouble. Even those who owned for a while, benefiting from the tail-end of a housing boom, have pissed away their gains by keeping up with their friends and neighbours. New cars, travel, outings. Nothing was sacrificed to pay down debts.

The people behind these mortgage deferrals are on financial life support. They effectively can no longer afford their homes and are depending on government handouts and the ‘kindness’ of creditors. While some are victims of bad timing, many of the wounds are self-induced.

Below, in a rare interview (she is retired) money maven Gail Vaz-Oxlade provides her candid, in-depth thoughts on the current housing situation. In it, she discusses with John Pasalis (President of Realosophy Realty) the following and more:

  • Is it time to buy a house?
  • When is the right time to buy a house?
  • How does home ownership change your life?
  • How do you know you’re financially ready for home ownership?

Source: MoveSmartly.com/summit

Categories
Real Estate Wealth

Canadian Housing Prices Down 10% Since Feb

Canadians aren’t working.

Employment has collapsed, as much of Canada slowly emerges from Covid-19 quarantines. In fact, the number of employed persons in Canada is near a 15 year low (see chart below).

This probably underestimates the problem because it doesn’t include people who are still technically employed but not receiving a paycheque. Many of these people will undoubtedly be added to the unemployment rosters soon.

Canada Employed Persons

It’s no secret that Canadian households are up to their eyeballs in debt. Debt requires money to service, making Canadians highly vulnerable to a negative change to their incomes. The current change is probably the worst we’ve ever seen, putting all forms of household debt at risk of default.

Hundreds of thousands of Canadians suddenly can’t pay their debts and have deferred their mortgages as a result – especially in Quebec, Alberta and Ontario (see chart below). But as I explained in a previous article a mortgage deferral is not a free lunch. The deferred payments are simply adding to what the borrower already owes. (In case you weren’t paying attention, that includes interest on deferred interest.)

All mortgage deferrals do is delay the inevitable. The ability for Canadians to start paying their mortgages again in the future is dependent on employment picking up very quickly. Unfortunately, this doesn’t seem likely. It could take several years for joblessness to shrink back to pre-Covid-19 levels.

The massive volume of mortgage deferrals is a stark warning sign: The Canadian housing market is on the verge of collapse, and with it the Canadian economy.

Simply put, when people can’t pay their mortgages, either they sell and become renters or the bank forecloses and sells the property for them. Either way, a lot more distressed sales enter the market, putting downward pressure on prices. Couple this with a dearth of buyers – due to general economic weakness – and housing inventories rise, again pushing prices down.

It’s only been 3 months and housing prices in Canada area already down 10% across the board. Some parts of Toronto are already down 18%.

While these numbers might not sound huge, they are. A 10-18% change within 3 months is massive! Unless the unemployment situation resolves quickly, by the end of 2020 prices could be down 20-30% across the board.

This isn’t just a housing market issue. The entire Canadian economy is overly dependent on housing and housing-related activity to drive GDP growth. A housing slump will be felt across the entire Canadian economy, with the drag lasting for years.

Ironically, if the housing market declines significantly it will open the door to home ownership to Millennials and Gen Z, which until now were locked out of the market.