Liars And Thieves

Happy Sunday everyone. It is a good thing that bullshit isn’t taxable, because there would be a lot of groups with a very large tax bill.

1. Let’s start off with the Canadian Real Estate Association’s ( CREA ) report this week whereby they basically said real estate can only go up, and up by about 4.70%. Laughable is the only nice thing I can say about that. With all of the issues going on in Canadian real estate, somehow the trade group for realtors puts out a report that says there is all of this ‘ pent up ‘ demand, and wait for it – the Spring market will boom. CREA’s slogan is “Empowering Realtors in support of Canadian real estate journeys”. I certainly hope that potential buyers are reading more than a CREA report before jumping into the market. Ironically enough, there are more G wagons for sale within 100 kilometers ( 60 miles for you Yankees ) of Toronto than there are in ALL OF NEW YORK STATE, so perhaps it would behoove CREA to get their members to buy into their bullshit before they publish it. It always blows my mind how these trade associations put out reports that are always bullish for their own industry. It makes me wonder what data they are looking at to make this assumption? Rates are still high, unemployment is elevated, tariffs are coming, consumer confidence surveys keep putting in lower numbers, and there is supposed to be 4 million people leaving Canada in 2025 when their Visa expires. How exactly is any of that bullish for real estate? Unfortunately, there are people who will buy into the hype, and look to make the biggest purchase of their lives based on faulty intel like this. And realtors wonder why they can get a bad rap sometimes?
2. How high can taxes go? Well, the City of Toronto is about to test that theory. This week T.O. announced they would be increasing property taxes damn near 8.0% for the year. That is on top of some pretty outsized tax increases in the last 2 years. When you add it all up, Toronto taxes are up a cumulative 25.3% in just 3 years. This is on top of property assessment growth, so there could be some hurting people in the Toronto area. If we have 25.3% growth in mill rates, and add a couple hundred grand to the assessed value, you could easily see property taxes be 50% higher than just a few short years ago. Of course the city never once asked how can we actually cut spending or derive better value for tax dollars – no, no, they just hiked up the amount they collect. Why should a broker in Burnaby BC care about Toronto property tax increases? Well, if Toronto can get away with it, then there is no reason that every other municipality won’t try and push the envelope as well. I have been banging my fists on the table for years now about impending property tax increases, and they are starting to trickle in. There are some pretty large cities that are looking to, and actually are pushing through very large increases that are well beyond the rate of inflation. Of course, every time someone pushes back they drag out a police officer, a firefighter and a paramedic, and claim that if they don’t increase taxes people will die. Classic tactic. Of course, that scares everyone into shutting up, and up the tax rate goes. As a broker, make sure you are getting recent tax bills when filling in the application. Don’t just assume you know the property tax bill – especially on a new purchase. Realtors have a bad habit of incorrect, or outdated numbers on the MLS. Getting the correct number upfront could save some last minute heartache at the lawyers office.
3. While the news has died down, the heartache that has been seen in the LA area wildfires continues on. While most of the fires have been extinguished, there are still a few that burn out of control, and next week the weather looks like it will be conducive to more fires. We have all read that these fires will become the most expensive fire disaster in history, with some damage estimates topping 100 billion. It is even possible that the total damage costs from these wildfires will top the cost of hurricane Helene that ripped through a good chunk of the Southern US earlier this year. The issue will become insurance. Insurance companies just don’t have the money to pay for all the damage – especially after watching a lot of their reserves burn up ( no pun intended ) with 3 or 4 major storms on the East coast earlier in the year. By this point you are probably looking out your window at some snow or low temps, and asking why I ramble on about hurricanes and wild fires that happened thousands and thousands of miles away? As Comedian Stephen Wright once quipped ” Its a small world – but I wouldn’t want to have to paint it”. As globalization grew over the last 3 or 4 decades, it made things like commerce and finance all that more interconnected. As the Great Financial Collapse in 2008 proved – the world of finance is more interconnected than we think. This is especially true in the world of insurance.

There is a misunderstanding in the insurance world. People think that their policy is with State Farm, so State farm is the one who foots the bill. My insurance is with RBC, so RBC pays the bill. To some extent you are right, but a lot of the funds you may receive in a claim are simply passed through your insurance provider, but actually come from something called a reinsurance company. The easy way to think about reinsurance companies is that they are your insurance companies, insurance company. Insurance companies do not carry 100% of the risk of the file, and it allows them to spread out risk. Typically your main insurance company will cover around 60% of the claim, while the rest is sent out by the reinsurance company. This was a great system that allowed companies to spread risk around, but in the last few years, the very thing that was meant to reduce risk is actually increasing risk. Now, I could go into a lot of detail and boring numbers about how reinsurance works, why we need it, etc., but you would fall asleep. All you really need to know is the problem we now have.

The issue is that as globalization has occurred, it has also allowed re insurance companies to grow portfolios, and merge their companies. We are basically down to 3 re insurance companies in the world. The issue with that is that the very company that was used to spread risk, has now become a risk itself. There have been a lot of payouts this year due to hurricanes, and now the wildfires. The same reinsurance company that paid out for those hurricanes and wildfires also reinsurance your Canadian homeowners insurance. Guess what happens when that reinsurance company finds itself a little light in the pocketbook? Yup, premiums go up. When the reinsurance company raises their premiums, the higher cost is passed along to the main insurance company ( RBC, State Farm, etc. ) and they are then forced to increase the premium you pay. Canadian homeowners could be looking at some pretty substantial increases in the next 12 to 24 months due to events that happened half a world away. Mortgage interest rates may become 3rd on the list in terms of what drives up the cost of homeownership, with property taxes and insurance clocking in at 1 and 2. When I moved to Florida just 3 short years ago, my homeowners insurance was 50% of what it is this year. Alternatively, it has doubled in 3 years. Please understand I am not complaining – just stating facts. I chose to live here, I knew the risks, and I am lucky to be in a situation where I can afford home insurance costs doubling. However, how many of your clients can afford a massive increase in insurance, alongside a big big jump in property tax rates? My guess is not that many.

And finally, I want to touch on what will likely be a volatile week ahead. Tomorrow at 12:00 noon all eyes will be watching to see what DJT 2.0 does. According to a lot of sources Canada should expect tariffs in place by 1:00 pm. Seems a little quick to me, but what do I know? If there is anything good about tomorrow it is that the markets are closed for Martin Luther King day ( stock and bond markets in the US at least ) so markets won’t be able to re price instantly, but rather will have to wait until the next day. This might help remove some of the volatility. That being said, Tuesday to Friday could be a wild ride on the economics roller coaster. My hope is that banks will be aware, and hopefully hold off on any rate movements until they see where we land in the near term. Unless we see massive spikes or drops intra day ( which I doubt ) banks will most likely try to remain as cool as cucumbers, and ride out the volatility for the week at least.

Things that will change yields on government bonds will be mainly around tariffs ( from the US ) and likely counter tariffs ( from Canada ). The bond markets will let you know their opinion on any tariffs likely outcome on the country. the USD / CAD exchange will also bounce all around, and my guess is that if we see the USD rip higher, it will signal a top in the currency. Sell into any strength we see this week. Any economic reports will likely take a back seat in the markets, but don’t put it past regulators or governments to slip out some bullish rule changes if it looks like the tariffs will be worse than anticipated. Keep your head on a swivel, keep your eyes and ears open for news, and stay on top of things that are going on. It is very easy to shut it off, and not get caught up in it all, but your clients are going to have questions, and the person that can provide answers is who gets the business.

And a big thank you to everyone who reached out to ask how it was without Tik Tok. It was the worst 12 hours of my life, but somehow we made it through. I can’t imagine the sheer fear that realtors were facing. How would they ever sell a house again if they couldn’t dance their way on Tik Tok to their clients? Thank goodness calmer heads prevailed, and common sense came back into the equation.

I hope everyone stays warm this week as temps look to plummet, and we will be back next week with news that hopefully is better than feared.