Weekend Reading – Out of control real estate edition
Hey Everyone!
Welcome to my latest Weekend Reading edition when I share some of my favourite articles from the week that was across the personal finance and investing blogosphere.
In case you missed last week’s edition, about earning money in your sleep, my thoughts on #FIRE, and how much real estate you should own – check out that edition right here.
Weekend Reading – Money in your sleep, #FIWOOT, how much real estate and more!
I’ve got more to say about real estate below, so read on and enjoy this Weekend Reading edition!
Have a great weekend and see you in the Comments section.
Mark
Weekend Reading
Real estate has gone wild. Or, out of control.
Blind bidding. Low-rates. High demand. Artificial listing prices. Low supply. All of these factors and more are driving Canadian real estate prices through the roof at a historic pace. One I’ve never even remotely seen before.
I’ve read countless articles over the last year about Canadian real estate. Commonly used words or phrases in these articles are:
“I did not know it was a game.”
“False advertising.”
Some agents’ “marketing strategies are illegal, deceptive, a waste of everyone’s time.”
Four years ago, I wondered how people can afford a teardown home in my city of Ottawa.
Where does it end I wonder…?
I suspect the real estate party is not going to stop near-term.
The Bank of Canada is not moving rates in the coming months. I think that’s a given. Thus, the key interest rate will remain at 0.25% until the economy recovers easily into the fall or winter 2021 at least. So, by keeping rates at historic low levels, credit will flow, and banks will bank.
All of this seems totally irrational until you consider one thing. To paraphrase Mark Twain on real estate investing: buy land, they ain’t making any more of it.
Millennials are turning to van life (highlighted in this recent Weekend Reading edition) to either save for a home or simply avoid home ownership all together.
There are even frugal pro athletes that have lived in vans. No joke.
Readers: when do you think the real estate boom will stop? Are you looking at buying or moving yourself?
Do share your real estate thoughts in a comment below. I look forward to reading them.
My recent posts:
Insurance expert Brian So and I discussed healthcare insurance benefits and plans for retirees – something to consider unless you plan to self-insure.
I helped a reader out by answering her questions – can she afford to retire on a lower income?
Other Weekend Reads
My buddy Frugal Trader shared another epic report on Million Dollar Journey. His portfolio now generates over, a whopping, $62,000 per year in dividend income – about 50% of that income is from his corporate portfolio. Interesting to read his mindset too…
“As mentioned earlier, instead of purely accumulating and building my portfolio, I’ve made the shift to spending some of those dividends. While I believe in investing for the total return of your portfolio (not just dividends), there’s a psychological comfort in getting paid regardless of how the market is performing.”
Ben Carlson’s recent post about life is too short aligns with my post here why saving too much for retirement can be a big mistake.
Why saving too much for retirement can be a big mistake.
In Ben’s post, he reminds readers that “striking that balance” (to spend today vs. save tomorrow) “is never easy because no one knows what the future brings.” Agreed – talking to devotees that live by any 4% rule. It is a reference I have on my site as well.
Retirement expert Michael Kitces performed a study on the 4% withdrawal rule a few years ago that shows the extraordinary upside potential in sequence of return risk – that you can actually end up with X3 if you stick to the 4% rule.
The 4% rule is a decent rule of thumb still but my goodness, don’t use it as gospel for your retirement plan.
Kitces explanation:
“As the chart shows, on average a 4% initial withdrawal rate results in the retiree finishing with nearly triple the original principal, on top of sustaining an initial withdrawal rate of 4% adjusted annually for inflation! In fact, in only 10% of the scenarios does the retiree even finish with less than 100% of their starting principal (and in only one of those scenarios does the final value run all the way down to having nothing at the end, which of course is what defines the 4% initial withdrawal as “safe” in the first place).”
A Purple Life highlighted a few things not to worry about in retirement.
Another Loonie has some thoughts about real estate – coming to an end.
Cashflows & Portfolios shared some tips about automatically reinvesting your dividends. Something I do here as well because money that makes money, can make more money.
This couple has absolutely no worries about money in this Globe and Mail feature. From the article:
“Scott and Lisa have an investment portfolio of $2.7-million inside the professional corporation and $1.4-million in their personal accounts, the planner notes. The investments are well-diversified, with 65 per cent equities, 15 per cent real estate investment trusts, 10 per cent fixed income and 10 per cent cash. “With annual savings and expected growth of 4.8 per cent a year, the over-all investment portfolio should grow to $5.5-million by the time they retire,” he says.” Whoa.
Dale Roberts posted some great content in this MoneySense making sense of the markets edition.
Robb Engen posted some sensible reflections in his accepting market returns post. Robb wrote:
“Market fluctuations are normal. Markets fall from time to time. Often by a lot. That’s a feature of your index funds, not a bug.”
A have a few reader questions to get to this weekend so I’ll be replying to those and posting them soon. In the meantime, check out my updated FAQs page here where I share bits about my portfolio, how I invest, and much more by answering many reader questions.
A reminder about my Helpful Sites page where I list a number free calculators and my own services to help you with your retirement math.
Happy Investing!
Mark
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
This out-of-control real estate edition reading was brilliant, and I think Mark did a fantastic job with the writing here. Keep sharing more excellent articles like this.
Thanks very much Bridge!
Every few weeks I’ll check to see how Cel and Stehanie are getting on out in Vancouver. Both of them in their early 30’s have nothing special jobs as far as income. No car. They rent a 400 square foot co-op apartment together. But gee, these two have a financial goal and can save like crazy. They use one of those robo-advisors. Used to be with Wealthbar, but got taken over by CI Direct. Latest posting showed a present net worth of $581,802 with a target of $700,000. I’m proud of them and don’t even know this couple.
https://incomingassets.wordpress.com/
Anyone in their 30s with NW > $500,000 is “killing it” for sure. Thanks for sharing!
I had just finished reading an article about people buying school buses in Nova Scotia and converting them into tiny homes, right before reading your post, Mark. While I greatly respect ingenuity and thinking outside of the box, I feel a bit sick about present conditions for the younger generation (and their parents)…the billboard about “find richer parents” puts further pressure on families – market dictates that a ‘good’ parent has no choice but to help their child buy a home? Sad.
Although I am pleased with our ROI on real estate holdings ( as it’s a part of my retirement fund), I fear the inequality and insanity being created by blind bids, etc. This will eventually affect us all.
Well said Karen. Yes, the inequality is happening right in front of all of us. I hope to give back more over time to help my community and I’ve already ramped up donations to those that are less fortunate (i.e., food banks, shelters, etc.)
We won’t use any home equity (at least no plans to…) to fund our retirement at all but I do feel for the next generation. Poor planning by governments to say the least, to ensure adequate housing and affordable housing is a priority. Beyond education and healthcare, that’s the only remaining big priority governments should have.
Instead they do this. Did you see this garbage in Ottawa?
https://ottawa.ctvnews.ca/councillors-launch-petition-opposing-2-9-million-tax-break-for-porsche-dealership-1.5436723
Our politicians believe this is good idea with taxpayer dollars over those other three priorities I mentioned. Makes me sick.
Looking at that 4% rule study, I feel lots of readers here, like RBull, Lloyd, and Mark yourself will end up with a big pile of money. LOL. RBull and Lloyd withdraw far less than 4%. I will try hard not to. Aiming to be broken when I die. Frugal habits are difficult to change though. My husband said I should buy a new cellphone as he feels mine is running pretty slow. My response is it’s still good enough. Both of us trying to get each other to spend more and unsuccessful. But I agreed to get the newest IPhone once it’s out.
Recently added some CNR but it keeps down. What do you think about it, Mark? I know you like CNR and aiming to add more yourself. Is this the bottom already or still a potential for more downside? I don’t have a full position yet and might average down.
That’s the thing right May? If you only spend 4% you have a 50% chance of growing your nest egg x3 even with spending. Not a huge fan of the rule but a great starting point for everyone to understand what is possible.
I hope to add more CNR this year May. Definitely in my top-5 to buy more of. Out of RRSP and TFSA room so I must buy taxable.
https://www.myownadvisor.ca/5-stocks-i-want-to-buy-in-2021/
I have no concerns CNR will not rebound at some point. On sale now with the all the Kansas City Southern drama.
May, I don’t own CNR after playing around waiting for an entry point the last several years. Misguided effort. Seems they won the recent bid, but is probably a tough hurdle to get their ownership passed in the US regarding competition etc. So the market is concerned and a failure there still costs CNR a bundle.
RE 4% stuff that many of us like to discuss: Yes, we’re less than 4%- less than 2.75% actually avg. over 7 yrs, but who knows what the future will bring. My VPW default assumptions suggest 5.0% withdrawal this year, my revised personal VPW “conservative version” suggests 4.3%, and the VPW default version that includes work pension, CPP & OAS @70 suggests 6.42% withdrawal this year. So just a few of many ideas or suggestions of what to do. We’ve spent way more the first 4 mths in 2021 than in any other retirement years and I have some ideas on other “things” we may get this year and if so will be by far our largest spending year. We’ll see. lol
RBull has a nice problem to have in retirement May! He can buy things/toys and more at will. I hope to be in his position in a few years!
Haha, Mark you certainly will be and more.
As I sometimes say we’re muddling along fine.
Looking for a truck, a thinking of a 4 wheeler, and building a 12 x 20 boathouse down by the shore. I’m currently building a 12 x 16 greenhouse, and doing some more landscaping improvements.
As my running volume and intensity has increased to 80k/wk along with 6hrs/wk of strength stuff I’m actually getting a little bit tired some days. LOL
Geez. You are a machine!
LOL. Thanks. I do try. Its fun, exciting and fulfilling for me.
Yeah, the suggested withdrawal percentage will increase every year with RBull always withdrawal much less than suggested. And it will be harder and harder for him to catch up. I am pretty sure you will be in his position too.
It’s amazing how busy RBull can become in his retirement. I hope my retirement life will be also fulfilling.
Thanks May. You’re thinking and planning how to have a fulfilling retirement. That’s most of the battle won. IMHO, people who aim only for work to stop have a hard time being happy, busy and satisfied in retirement.
I can truly assure you I am going to step things up as we get closer to govt benefits, as long as markets also cooperate.
Ha. We’ll see May. As you know, my plan is to work for another 3.5 years, full-time for sure as will my wife and then once our debt is gone make some part-time work decisions. That will be just past age 50 for me.
He is amazing isn’t he? Geez.
You picked a hot topic Mark.
Housing affordability is a global issue not just a Canadian exclusive. It is in some ways worse here as homes are considered investment/speculation vehicles, taxation favors the haves and mortgage rules favor the banks. Urban planning and development in North America is set up for short term profit not long term societal needs or sustainability so housing is really part of a purpose build systemic issue. Check out strongtowns.org for some light reading on the topic. Imo the housing industry is a big Ponzi scheme nothing more and I would trust a realtor as much as I would a financial “advisor”. Btw I find the remax comment quite offensive and completely out of touch. 5% down on a 500K (average house price) mortgage still means a young professional couple might well be out of pocket over $1M once you factor in closing cost, interest, tax and insurance etc. how is that okay? Add kids, a car, student loans, high cost of living, low income growth and it is not surprising young people are checking out (#vanlife) of a system that does not work for them. Honestly if I had to do it again today I would likely do the same.
Enjoy your weekend.
Ben
Ya, that Remax reply was bonkers. I had to include that in my screenshot for a reason.
Thanks for the link Ben, great stuff. I will check that out.
There is no way I would take on $1 M like some kids are doing these days. That’s insane and I personally couldn’t handle the stress. Almost mortgage-free here, just a few years (3 years, 5 months) to go.
Stay well Ben!
Mark
For so many years we’ve been hearing that the housing bubble is about to burst but yet we haven’t seen it , I’m sure new buyers people who are about to retire don’t want to see the prices coming down and specially governments and provinces and municipalities don’t want to see their revenue from taxes taking a hit , but the majority of people are hurting since majority of people aren’t making six figures in order to afford these houses and rent is skyrocketing in all major cities pushing all the young and talented people to urban areas.
it’s really sad that we live in the second biggest country in the world and the land is that expensive, but what I’m most shocked with is the amount of people who are buying , by my area there’s literally tens of towers that are being built and a lot of them are sold out or near that way before they start the construction…it’s amazing .
It is shocking Gus what is happening. I have no idea where the top is but I don’t think we are there yet.
Thanks for sharing my post, Mark! Another great issue of weekend reading. I’m happy to see we’re aligned on the topic: Canadian real estate has gone crazy over the past year, and I say that as a homeowner. Even if we saw a 20% pullback (which is hard to imagine), that would just put us back at last year’s prices. That shows just far gone things have become.
I think out-of-control home prices have had a lot to do with the gambling mindset many young people have when it comes to investing. What happens when “swinging for the fences” is your only hope for owning a home?..
All the best,
AL
I have no idea why renting is so frowned upon. Low rates, low supply, high demand are definitely fueling the fire. Rates need to go up but they won’t for a few years in any meaningful way which means prices will climb higher near-term. No bubble to pop yet me thinks!
Stay well 🙂
Mark
I have been thoroughly enjoying the Canada housing Twitter feed. And I am so impressed with how much your prices have risen compared to real estate prices in America. The United States is so cheap in comparison!
I wonder if there will be a huge uptick in buyers from Canada. I really don’t think the housing market will crash anytime soon. If your long housing, I think you’re going to be much richer three years from now.
Sam
Yes, Canadian home prices up close to 40% YoY Sam. Incredible. U.S. is very cheap overall although SF/Cali, NYC, other cities remain very expensive overall. We’re long housing here, we’ll own our condo in the coming years and also have a decent investment portfolio so we’re not counting on any house assets for any retirement – it will be extra equity. We’ll also have workplace pensions to draw down in our 50s and 60s+.
I think the housing boom is not going to stop for a few years here in Canada. Low rates, low supply, high demand and more immigration are going to make prices go higher for some time to come.
We are seeing a mass exodus, specifically single young folks, leave for America or their home country. 2 of my colleagues returned to India saying ‘game over’. 3 have decamped for TX, NC or CA. 2 others are returning to Europe by year’s end. Government doesn’t care, there’s plenty of people who will come to Canada and do the work, even cheaper. Wage suppression is already here, thanks to immigration, and I’m pro immigrant. Investors full of cash will come to get papers and park their $ in real estate. No supply thanks to NIMBY homeowners protecting their ‘heritage views’. If it wasn’t for my kid, I’d be leaving this country too.
Question: is how long can this scheme go on for? Our voter base (see Adam Vaughan in TO) is too selfish to understand this, and don’t want any crash whatsover so the govt and the Bank of Canada want to obviously continue the party to keep them in power. Soon a lot of voters (immigrants and people under 40) who don’t have tons of money with them, will also realize this Canadian dream is really too far out for them, and will try to go elsewhere like Australia, Europe or the US, and Canada will kick this housing can further down the road.
Very interesting comments Mike – appreciated.
Gosh, to answer your question, no idea. I don’t want a crash at all either but my goodness the state of housing is insane right now. I don’t see an end to this boom until rates go up as they should and supply increases. Until then, thanks to immigration which I fully support I can see house prices climbing.
I could see some GenXers leave Canada in the coming years and certainly more millennials after that. Just a hunch that some geo-arbitrage is desired for them. I know we’ve considered it.