A tale of three. Rob’s a banker in Vancouver. Sara owns a home in Ottawa. And Chet’s a realtor in Red Deer. They’re all in their early thirties, and each wrote me in the last two days.
A good time to do so. Interest rates rising today in Canada. Toronto house sales crashing 38% this month. Confidence and real estate plunging in the US. More talk of a double double. And the Bank of Canada sounding the alarm over runaway consumer debt.
“Your blog is an oasis of sombre reality in a cyber world chock full of unquantifiable bullshit,” says Chet. “I have been watching the market creep to a halt around me over the past two years, and although we may be a bit more sheltered where I am, the basis still rings true. The market is taking a hit, and recovery is further away than the builders / real estate professionals want you to believe it is.”
Indeed. Asset deflation is upon us and another quarter point increase in the cost of variable rate mortgages won’t help. It’s now apparent what we did – bid house prices too high, borrowed too excessively, gambled too much. This could be Middle America, 2005. And we’ve seen how that movie ends.
“I would love to run around blowing smoke up peoples asses that the market is heating up, or that now is the time to buy,” says Chet, “but I am a terrible liar and much too conscientious to go about business this way.”
A real estate guy with a moral compass – almost as rare as a banker with ethics. But there’s hope in Vancouver.
“I have followed your blog daily for almost a year now,” writes Rob. “What makes my situation slightly different is that I am a certified financial planner working for an excellent Canadian bank.”
He goes on: “Although the mantra by branch managers to the Account Managers and bank staff is still (to quote what I heard from one of them) “park your morals at the door”, what is important is that there is acknowledgment at the top of the house that things will begin to change. The advice component that I have delivered to my clients, and which is what is going to become more and more common, is right on the same track as what you have been blogging about.”
The important part of Rob’s letter, however, is this:
“I am writing to you today as I had a meeting yesterday with a senior executive out of Toronto who said some staggering things that I thought I would NEVER hear from anyone in the top echelons of the banking industry. He explained that executives have been meeting together and advising the board of directors that what the bank has been doing for the last 5 years to generate profits cannot continue. He explained that the banks have leveraged up the canadian citizenry to unsustainable levels. He said that going forward (here is the best part) we have a MORAL obligation to provide the right advice to Canadians regarding their spending habits, budgeting, retirement, investing and borrowing desires. I was shocked! This was the first time I had heard a Banker expose the truths of what is going on in Canada right now and take ownership of the fact they have been dangling the carrot and enticing the population into perpetual debt.”
Would be refreshing, encouraging and inspiring if this were in fact true. The crushing embrace of debt is now the greatest threat to what’s left of our middle class. It fueled an absurd swelling of house values. It’s polluted the family balance sheet. It has erased a generation of savings. Mortgage debt, lines of credit, credit card debt, student loans – they are all at the high water mark. And as houses deflate – where most people’s net worth has carelessly been left – that debt may douse consumer spending and swamp the economy.
It’s why I’ve been chorusing for months that the best possible strategies are to be liquid and trash debt.
Sara, though, risks drowning. And knows it not.
She and her husband wrote me for financial advice, concerned about their parents. “Like many other boomers, they will likely need some level of financial support from us in the next five to ten years. Standard story here, minimal RRSPs, no pensions, minimal investments, and no real savings.”
So, Sara, what’s your story?
“We’re in our early thirties, new baby, new car, very fortunate and stable, with great jobs ($180k gross) in the federal government. We purchased our dream house last year in a great, walkable, downtown neighbourhood with excellent public schools for $800k with 10% down and a 35 year amortization. Other than the house and car we have no debt and $25k in savings. Our goal: Develop additional streams of income that we can put towards mortgage payments, savings, and ultimately, family obligations when the time comes.”
And so, a problem. This couple has $105,000 in net worth and $720,000 in debt. Eighty per cent of their wealth is in one asset, and a 15% correction in real estate values would more than wipe them out. Locked in a 35-year mortgage in which they pay off virtually no principal, they epitomize risk and should never have bought, nor been loaned more than seven hundred thousand to buy a dream home.
“Friends and family have told me not to worry since we seem to be in a good position,” she says, “but I also know how quickly our fortunes and the fortunes of those around us can change.”
Dear Sara, you have no idea.
208 comments ↓
I was born, raised and still live in Victoria, BC – one of the most volatile housing markets in Canada.
In the early 1980′s, the BC economy went into a deep recession and mortgage interest rates soon skyrocketed to 18% (or more). Many people couldn’t keep up with their mortgage payments, and were forced to sell their houses/condos at a loss (too much inventory). By 1986, the relatively high interest rates (10%) continued to “force” down the prices of real estate such that were many reasonably-priced homes and condos available to first-time buyers. (I had just graduated from high school, and I didn’t have required 10% for a down-payment.)
Sixteen years later, the housing market was again very attractive again in 2002. The “dot com” bubble was bursting, markets were in decline, interest rates were very low (2.5%) making mortgage payments for housing prices reasonable (again) for first-time buyers. In 2002, my wife and I bought a single family home for about 2.5 times our combined income.
Now in 2010, after years of extraordinarily low interest rates – real estate is ridiculously overpriced, but markets are in continued decline, and interest rates are edging upward. Although I’m not expecting a repeat of 1981-83 interest rates, rates have no option but to go up. Even a modest increase of just 2% will add an extra $500 to a mortgage holders’ monthly payments. It is these weekly/monthly payments that dictate the amount that people can (or are willing to) afford. If these payments increase too much, then cash-strapped owners have no choice but to sell. If too many owners start selling, then there is a glut on the market, and prices tumble. Throw in the HST, tightened mortgage rules, a continued recession, overpriced housing and it is no wonder that prices are already beginning to fall in Victoria. Will prices fall 15%, 30% or more? Who knows … the market will decide!
The concensus on this blog appears to be four (or more) years of devaluing real estate followed by a period of stagnation. I suspect that by 2018, real estate in Victoria will be once again reasonably priced and affordable to first-time buyers. Hmmm … 1986 – 2002 – 2018 …. what is with these sixteen year cycles?
Historical Bank Rate: 1935 – 2009
http://www.bank-banque-canada.ca/pdf/annual_page1_page2_page3.pdf
Annual Summary of Residential Sales in Victoria: 1978 – 2009
http://www.vreb.org/pdf/historical_statistics/YE782009.pdf
Not all bad news out there…
http://www.emailthis.clickability.com/et/emailThis?clickMap=viewThis&etMailToID=182470833
Yikes – Sara is a walking case study for the economics 101 classes of 2015.
$180k gross (at least, in the years when they aren’t having babies) with an $800k house.
800/180 = 4.44-to-1 on the ol’ price-to-income rating only 50% beyond traditional metrics! (I’m sure that they’ve heard that they are way ahead because of that “giant” 10% down payment)
Who the hell gets a $720,000 mortgage!!! 2 people with $90k/year incomes… not even close to “rich” by downtown Toronto standards. Have they ever heard of trading up??? How about the words “starter” and “home”?
No wonder home prices in Leaside, Yonge&Eglinton, Yonge&Lawrence, etc. are in the stratosphere… because of these brilliant individuals we have working for us in the government!
They probably work for CMHC – oh, the irony.
Oh, young government employees. I left my 5 year government job two years ago for other gainful employment. Sometimes I regret it, especially when I get together with my former coworkers who brag that they have recently taken great vacations, and drive expensive cars. Because who needs savings? They have a fantastic government pension to look forward to (in 25-30 years). Remember when your mom told you that when something seems too good to be true, it probably is? That’s why I left. And I still rent, while my former coworkers (along with most people I know) are maxed out in debt. Ouch. This surely won’t end well.
Over leveraged mortgage owners, that’s not sunlight, and its coming for you.
Garth – I read your blog as another important source of information and view for what I believe to be a very important decision that I (hope) will be making soon. I missed the run-up through the mid-2000′s and have watched certain areas (I’m in Toronto) pretty much double in terms of the house price that I could have paid 6 years ago to where they are today. Sales are down YoY from June 2009, yet average prices are up. Inventory is up and there are still bidding wars to be had. Here’s what I think is happening:
1) People are rushing into houses b/c their pre-approvals are expiring. I know mine has or is soon and that was at a pretty good rate. I am also a 20-25% down, 25 year amortization type of fool.
2) Carney(val) has inherited and is now presiding over a potential quagmire of crap. There is no way that a semi-detached vinyl-sided 3 bedroom house at Bloor and Runnymede should sell for $729,000… unless you’re fooled into a 35 year amortization, 5% down with the 5% lent by the mortgage…and yes, that has/is happening in Toronto. We are overleveraged and, unlike Fanny Mae and Freddy Mac (private mortgage insurers that imploded in the US), our CMHC takes the crap off the balance sheet of the banks and packages them off with a backstop of the Federal Government. That means that you and I are backstopping the 5% down, 35 year amortizations. Carney has to raise rates to cool borrowing WITHOUT sounding off a housing bubble alarm. Next up, I believe, are changes to the CMHC guidelines b/c this entity has become like Ontario Hydro of the past – almost all Ontario Government debt at one time in the 80′s funded Ontario Hydro or were Hydro-related issuances. Now we’ve got the CMHC as our burden to bear. But he has to do something so, in spite of ALL indicators of a double dip and the need for emergency rate measures, he raises rates to curb PERSONAL borrowing b/c Lord knows the businesses haven’t been partaking of the cheap money – the lenders are too skittish to part with it! But mortgage? for sure – after all, the Banks get the asset.
3) Is it different this time? Well, probably b/c the market has been padded by the CMHC. I don’t think that we all of a sudden have these billionaire immigrants coming to Canada (Toronto or Vancouver, lets be honest) that weren’t coming in the 90′s. We had them then and the market still plopped.
4) You don’t need a doubling of interest rates to the levels of the 90′s to impact housing prices. In the 90′s there was a meaningful down payment placed into houses so that when rates did jump to 16 or 18%, it was difficult to erode those who had prudent equity in their homes; however, it certainly did crush those that didn’t – speculators for the most part.
5) Our stellar economy is growing at leaps and bounds in SPITE of the total collapse of the global and, more meaningfully to US, the U.S.A economy. We have not decoupled, we never will, we will always be tied. We may have recouped those jobs lost during the ‘recession’ which, miraculously, ended in about 2 weeks supposedly, but what types of jobs are they? 100K+ bonus jobs or service type jobs at a fraction of the previous income. They may say things are great, but I don’t see it. And I certainly haven’t rushed out to buy a large screen TV. As rates go up, so will debt-fuelled spending. And then you’ll see what the economy looks like.
Ultimately we all make our own decisions – will we suffer a 30-50% drop in prices like in parts of the US? Doubtful. But a 10-25% drop, perhaps? I don’t know. I’m itching to get in and everyone looks at me like a loser b/c I haven’t got in, but my gut tells me to hold off and my folks say “we’ve seen this before”. In fact, tons of people have ‘seen this before’, including pals in Chitown and those places.
Anyways, thanks for your thoughts. Though I don’t want to begrudge anyone of their livelihood or their homes, I do think that this market is, simply put, full of shit. And we’ve been lied to.
Correction, as rates go up, then debt-fuelled spending will slow down and then we’ll see what the economy is really made of.
10% down for a 800K house is just ridiculous.
Even I was sipping the kool-aid while the going was good but still wouldn’t have imagined anything less than 20 down.
I’m shocked that in this day and age people would take a nice salary alone as fast-tracked entitlement to the good life.
The number off idiots I know that make 150K+ would probably shock you guys.
And just because they happen to earn what they earn through the unique set of circumstances that landed them there doesn’t mean there’s a line of others willing to foot that bill.
To be chained to a particular company like that is exactly the type of stress I need to be avoiding.
Sara is but one of many.
The Canadian ‘good banks’ Myth…Now, who will bail out
CMHC? There is only one taxpayer….you.
http://communities.canada.com/vancouversun/blogs/communityofinterest/archive/2010/05/24/the-canadian-good-banks-myth.aspx?CommentPosted=true#commentmessage
“The Embrace [sheeple cuddling up to banksters] . . . enticing the population into perpetual debt. . . be liquid and trash debt (but) swamp the economy.”
Well that’s a mouthful of horseshit to be proud of — “My debt is bigger than your debt!”
BTW, any ideas on what can be used to swamp the economies of the world? Running wild and free and presently all unaccounted for, there are CDS’s, Derivatives, falling / failing currencies, civil unrest (see link), fading infrastructure systems worldwide, the constant give-and-take re: CC.
Do politics matter any more? I think not!
In case folks hadn’t noticed, the world is still turning and I have a weedy lawn to mow tomorrow. The beer will rise and I’ll have a pint of BP Special, please!
Just in time for riots when sheeple raise up on their hind legs, whinny noisily and bleat loudly “POOR ME!” 4:33 clip Civil unrest underway in Oakland, Calif.
Ministry Of Silly Walks (not). Obama is showing his true colors, but the elite wanted him there and sheeple were dumb enough to vote him in.
Fairytale Economics Yeeehhaawwwww it wurks! Hungary “Maybe Hungary decided they didn’t feel like impoverishing their own people to make the international bankers that much richer.” wrh.com.
BP + Oil Spill = “If true, this could be bad news for the thermohaline, i.e., Europe’s ticket out of freezing.”
Interesting comment from the vancouver banker who was shocked that the head honcho from TO started speaking of “moral obligations” Garth.
I was vacationing in PEI last week and spoke with a relative that works in the banking /loans industry.
She said the exact same thing.
Is this the “new” tactic the banks are now going to focus on?
Honesty? Integrity? Morals?
Geez ! Who woulda thunk it ?
Hello ! Are any politicians out there paying attention?
Unfortunately the entire barn full of animals has run away into the deep dark woods while the “morally corrupt” gate keeper was sleeping.
Does it take a financial meltdown of 1930′s proportions ( lets not forget the 312 TRILLION $ in gauranteed debt obligations that every bank and insurance company directly or indirectly is on the hook for). To finally wake these greedy pricks up?
I dread the next few years of RSP/pension statements
Dear Sara, you have no idea….Ditto!
from the previous post’s comments, where are you folks getting the 37% number?
I don’t doubt you, just want to see the source & if it’s broken down by price and location segments
#93 poorguy on 07.19.10 at 10:40 am
Meanwhile,Mid July GTA sale has tanked big time.
37% down
#86 BrianT on 07.19.10 at 9:54 am
GTA sales down 37% YOY mid July as the slowing continues.
I linked the source in the last post. — Garth
“is exactly the type of stress I need to be avoiding.”
New Canadian disease :Stress
I have immigrated from Ukraine (part of USSR)more then 10 years ago, I have seen how government good intentions to make live better, safer (for you Preri girl) ran that country into the ground. WHen I came to Canada once I saw something that was very much like Soviet Union style work. Here it is: The guy had a plugged drain (in the ground (8 feet below), so up untill city property line 2 young chaps with showels were digging their trench, from the road to private line there was 1 excavator and 5 city workers ( with all their safety gear and
orange color tapes all over the place, must be to feel safer). Anyway you should have seen how much faster
trench and underlying drain were dug on private part by 2 pair of hands and showels and that was just a showcase for our Canadian politicians. They can’t fix economy by employing people at government jobs, those who get that job will become more and more lazy
raising GDP, but lowering overall standard of living in the Country.
After paying about $250K for my house 7 years ago, I know how much work it was to pay off $120K of that so far. Raising a family to boot, and keeping up with RRSP’s etc. meant that I struggled to pay down the principle. I could not imagine doing that 6,7 or 8 times over. Mortgages in the hundreds of thousands of dollars are un-repayable.
A sick feeling in the pit of my stomach when I get a glimpse of many of these peoples balance sheets.
It’s obvious the bankers want every sheep who bought the last 5 years to have a safety net to pay them when mortgage renewal time comes, not for themselves and their future.
The banks are finally admitting the obvious, there’s no one left in the bull pen to keep the buying going other than a couple of young and dumb rookies with fantasies of “The Show” and some old farts with elbow problems and weak knees who can’t throw the fast ball if their life depended on it.
How can people stupid enough to pay 800K for a house in an over heated market make $180K in salary? Of course, only the govt. They probably wouldn’t survive in the private sector
“Other than the house and car we have no debt and $25k in savings”
So, other than her $720,000 in debt she has no debt.
Perfect.
They are all unique in that they will find out!
One has to be asleep to not recognize that what is happening economically is unprecented. Just today we had Obama on TV, with a couple of unemployed Americans, begging congress to extend the unemployment benefits for millions who have lost or are about to lose their benefits. These people are at the point of zero income, given the dismal savings rate in the US. The thing is though, that even if the benefits are extended where does the money come from to pay? Borrowed? Printed?
An agro-economist was speaking on the radio on Saurday and he was discussing the increasing levels of hunger in the US and how many of the hungry were employed. There are now 48M people on food stamps. This is not just another garden variety economic downturn, it is structural and the bad news just continues. The US is in a depression and eventually people will be forced to admit it or they will lose credibility for overlooking the obvious.
Bankers are getting worried as their internal metrics are showing that there “A” and “B” rated clients are already maxed out in debt way past were they should be.
They need a new business model to drive profits and its not going to be LoC’s or HELOC’s or Mortgages. Investment are the next new thing and the only way to sell those is to sell honesty/morals etc.. And when I mean sell, i mean to the general public
I am pretty sure that we as a collective country are either at PEAK CREDIT or we passed it some time ago.
Simply put, people are just not willing to go into more debt- more frugal.
800 large for a place in central Ottawa, we’re talking a pretty decent place. This sounds like the Glebe/Sunnyside. Not even mentioned is the outrageous property taxes. I’d guess $8,000-$9,000/ annum.
Ottawa’s taxes, especially within the greenbelt are dear. Mayor Larry flew in with the hopeless 0% tax increase promise.
#5 squiddly…..LOL. Great pic man. Keep terrorizing the Calgary bulls. I love watching you and Keith battle the Calgary realtors. Always good for a laugh. For the record, I enjoy a lot of Truman’s comebacks as well. I check out Bob’s blog almost daily for stats. It looks like July is going to suck for sales in Calgary. This doesn’t surprise me as there are a lot of intelligent people in Calgary.
http://www.bobtruman.com/
ps. Keep pumping out the stats Bob……try to have them posted by lunch
Sara and her I’ll will also be the first the yell…help in the conflagration and the hard working saver and straight arrow will wear the pudding on the old school tie.
I am horrified at the level of debt of a lot of my so called, educated, friends. The big vacations in Maui and yet they don’t have enough cash to buy groceries, or insurance, or anything….so it seems to wind up on Credit cards.
That is a whole other ball of wax that Mr. turner has been writing about since day UNO.
I think that the generational schism is on perception of just what ‘debt’ means to someone who is 39 as opposed to a 19 year old or someone who is 59..and I think it all hinges on the “payment”.
Sara will be working for her entire life to pay of a home that is over valued by a factor of THREE….at least. It just makes me Sick at heart.
Be careful out there.
LOOK – I CAN PLAY WITH STATS LIKE THE REALTOR ASSOCIATIONS:
>> Average price in June for the GTA was $435,034
>> Average for the first 2 weeks of July was $427,931
>> Average price is therefore down 1.65% in 2 weeks
>> Project that 2-week loss over 52 weeks, and you get a 43% drop by next July!
Can People Afford these mortgages?
Well, yes, so far, so good… Yes it may be equivalent to the guy falling off a 30 story bulding and shouting, “so far, so good” as he passes the 10th floor.
But so far Canadians are paying their mortgages.
The latest figures came out a few days ago
http://www.cba.ca/contents/files/statistics/stat_mortgage_db050_en.pdf
The oveall figure for Canada is taht only 0.43% are 90 days past due or more. That is just 1 out of 238 mortgages that in arrears 90 days or more. (unless the banks are cooking the figures which in a way is possible, if they agree to let you skip a payment or 5, I guess you are not technically in arrears)
The equivalent figure in the states is closer to 10% delinquent or 1 in 10!!!
Now maybe everyone is just hanging on because with high house prices almost everyone does have some equity in the house and they have hope the equity will grow. If prices drop 20% we might get a bunch of people giving up… but then again in Canada that requires bankruptcy whereas in many of the States it does not. No strategic defaults here.
And note that in 1992 the 90 – day delinquencies peaked at 0.65% or 1 in 154, so we are lots better off then 1992 (so far). I can only imagine what it was in 1980 ewhen tons of people lost their houses a lot higher than 1% I am certain.
So what about credit card delinquencies? Latest data for that is:
http://www.cba.ca/contents/files/statistics/stat_creditcarddelinquency_en.pdf
We are at 1.29% in April down from 1.34% in January. Higher than recent years yes. The report does not show recession of 1992 but it was probably higher then. I mean only 1 out of 75 people is at least 90 days behind on an unsecured credit card.
Look, unlike many of you I don’t claim to know where these figures are headed, but at the moment there is nothing alarming in these figures, nothing alarming at all. And nothing like the States.
And you might think your co-worker can’t afford that $350k mortgage, but so far she is paying it. She may have a second job, but she is (with very rare exception) paying that mortgage. Maybe it’s due to a 1.8% floating mortgage… dangerous, but do far so good.
Last year I was certain we would see a wave of delinquencies due to job losses in Ontario. Simply has not happened. I don’t know why. Maybe it will be next month as UI runs out, I will watch the figures.
I have 20+ homes listed on my ‘favorites’ on MLS. 2 of them have sold within the past 2 months.
I’m certainly in no big hurry right now.
I can accept a (reasonable) price premium in that sexy drunk cheerleader of a province known as BC….
But my rough, unshaven, beer belly, cousin lovin’, frozen balls 6 months of the year stompin grounds of Alberta?
300K for a 890 square foot 60 year old house?
Not from this cow poker.
Sit on your hands and dictate a market drop so daddy can buy some reasonable priced habitat.
Thank you sober Canadians of Canada.
The Edmonton Real Estate Blog has a good discussion going today. Let them know what you think if you have some time. It would be hilarious to see a post from squidly show up in the comments section.
http://edmontonrealestateblog.com/2010/07/when-is-a-good-time-to-buy.html
ps. Today a colleague of mine announced that she was taking her condo in Edmonton off of the market because she would not get all of the money that she put into it. She plans on waiting a few months until prices recover. I told her it could be many years. She was upset and got emotional. It was as if I was instilling doubts that caused her to question her faith…..wait a minute, I just came up with a new blog word….
REALIGIOUSTATE
Find a local congregation at a ReMax office near you.
Valuations are Variable!
Debt is Constant!
What else do you need to know!
Up in Shanghai last week…tick tock!
Sara, you are what’s wrong with this world but your not alone and in the highest majority. Misery loves company!
@Sally Smith, Post #4…
Young government employees… “They have a fantastic government pension to look forward to (in 25-30 years).”
——————————————
Greek civil servants said the same thing last year at this time… Deflationary pressures can change things pretty quickly… including collective agreements.
nice post dude,
awesome actually!!!!
it s R O C K. N
R O L L
T I M E.
))
The fed government is no longer a secure, for-life, employer – and rightly so. Many departments are taking a look at their balance sheets, including one that a family member works for. The odds of being her laid off are greater than ever before. I’m just glad she doesn’t have a monster mortgage around her neck… things are stressful enough as it is for her.
The second half is shaping up to be ugly in Alberta. Sales have fallen off a cliff, and losing momentum.
http://creastats.crea.ca/area/
http://edmontonhousingbust.com/2010/07/historical-monthly-sales-levels/
The crushing embrace of debt is now the greatest threat to what’s left of our middle class.
Elizabeth Warren lays out how higher house prices have lead to the collapse of the American middle class. 57 minutes You have to hear and understand it.
She says that in 1970 a family had to have 52 paychecks to meet the mortgage, today it has to have 104.
http://www.youtube.com/watch?v=akVL7QY0S8A&feature=related
rolllllllll, rooollll down da hilllll
Garth, do you buy into the “Human Capital” idea? It’s where a person looks at how much they realistically will earn in a lifetime instead of looking at monthly payments.
E.g., mid twenties yuppie earning an avg 100k/yr over 30 years has an after tax human capital of ~70k/yr. Expenses are probably around 30k / yr not including housing, that leaves 40k / yr or 1.2 million earning potential.
They say you should have $1 million for retirement, that doesn’t leave much for a house. Let alone buying a 300k house over a 35 yr mortgage for a total loan cost of $900k (@8% interest).
And we all wonder why no one has any retirement savings. The banks have been sucking the human capital away from people their entire lives.
DELETED
I like the honesty coming from Rob and Chet. It’s good to see there are still people like that out there, unlike most of the people who write for newspapers.
OK, I see it now; Thanks a lot. I couldn’t get the PDF earlier for some reason but it came down OK this time.
__________________________
#86 BrianT on 07.19.10 at 9:54 am
GTA sales down 37% YOY mid July as the slowing continues.
I linked the source in the last post. — Garth
“We’re in our early thirties, new baby, new car, very fortunate and stable, with great jobs ($180k gross) in the federal government.”
That’s pretty obscene. Two fed jobs = $180K? I work in software in private sector and programmers make under $50 K with ten years experience (no benefits). We appreciate $50 K and realize this is reality in the industry. No wonder why our taxes are so flipping high and our debt so huge. Must be nice to be a fed!
Stupid me — went into wrong industry.
There were no Saras back in the days where CMHC had a cap on the amount they could insure, of course. The government should not be in the business of insuring $700,000 mortgages.
Sara also probably qualified before the “5 year rate” test. A good test, no doubt, but again CMHC operated with no real limits for a long time.
35 year ammortizations also need to go. If a person cannot afford to pay back the mortgage in 20 – 25 years they probably bought too much house.
I wonder how many of these monsters CMHC has bred over the years?
Market manipulation never ends well.
But the government needed a bubble. It was the only way to drive consumption high enough to pay the taxes needed to balance the budgets. They will try it again. The natural economy is only so big, so in order to fund everything we need debt financed bubbles.
I think inflation will return with a vengance. Not hyperinflation unless Big D really screws up, but 70′s style inflation is possible. We’ve already had 70′s style inflation in housing and energy (and all through the energy supply chain), so even if those don’t go up further from here there is plenty of room for everything else to catch up. If that happens, let’s hope there is some way for wages to inflate in the globalized economy too.
On the bright side, BP says they have the well capped. Meanwhile some of the deepwater rigs have set sail for greener (or browner, whatever) pastures. US oil production will suffer as a result of this event even if the worst is officially behind us. That means higher energy prices for everybody. Thank Dog for shale gas, which is saving our bacon. So long as they don’t shut it down due to worries over fracturing. But even still normal gas prices are 3 times what they were 15 years ago. I wonder what inflation rate that is?
#6 Toronto Rocks
To accomplish this, I believe, one of the steps on Carney’s list is “And a miracle happens.” He is stuck between a rock and a hard place of his own making, through actions he undertook when he thought he was already between a rock and a hard place.
An 800k mortgage amortized over 35 years at 180k in gross income?!?!
The biggest risk to Canadian’s doesn’t seem to be debt, but rather pure stupidity!
Why not just borrow a few hundred grand and go to Vegas? The outcome will occur much faster!
Whoa whoa whoa. Wait a second. What planet are you people living on? Give your collective head a shake.
Bankers suddenly didn’t just get religion through immersion in a body of water. They didn’t simply just grow a moral compass.
Know what happened? Some ran a sensitivity analysis on the models used to manage their holdings. The sniff test wasn’t passed. Someone quantified the impairment that might occur should some scenarios occur.
The only epiphany that’s happening here is that bankers are now more aware that they want to avoid a “come to Jesus” style meeting.
Their last sentient grey cell isn’t “getting” this because it’s going to be beneficial for _you_. They’re “getting” this because of the potential that it might be good for _them_ (and then _maybe_ you, well on down the line. Maybe.)
I work indirectly for a sizeable US East Coast hedge fund and private equity firm. These guys are always on the lookout for things to make money and they’ll analyze that shit six ways from Sunday. But to really get their attention, all you have to do is have have a half-baked idea that something might be at greater risk than originally understood. Before you know it, a team of portfolio managers, CFAs and business analysts will be re-vetting models like you ain’t never seen before.
There is a two-edged sword cutting like a scythe through tall dry grass. One edge is housing; the other is employment. So far up her in the Superior North we’ve focused on housing. But look down there; unemployment is cutting them off at the knees. And if you think the figure is really just under 10% I’d say you really like Kool Aid.
As we follow their collapse (I know dip sounds so much more genteel doesn’t it?–”Care for a dip before dinner?) anyway as we play caboose chugging along after the great US engine we’re going to approach a mountain of hurt. ‘Cause if it’s painful to lose equity in your home, it really hurts to lose your job and have to look up the Food Bank number.
Once again black is the new black except if you’re talking finance, then it’s red.
180K per year? And she’s worried?
Not to put too fine a point on it honey but my heart pumps purple piss for you.
Harold
Government salaries desperately are overdue for a smackdown. $90k/year + pension is ridiculous for almost any skill used by the federal government, especially given the high rate of unemployment in the Canadian economy, and the abundance of very high end labour (ie: engineers) who would work those jobs for less.
“180K Gross” that’s what the total morons told you in their email. LOL
I am so sick of people talking about how they make 90k, 150k, 250k. Listen up folks, it does not mean crap how much you make.
It’s all about HOW MUCH COIN YOU BANK at the end of the year after all your taxes, mortgages and bullshit expenses.
Garth, what are your thoughts on the New World Order?
I heard today that the local bank manager could not play his usual Tuesday round of golf, as he was too busy trying to save people’s houses.
Local prices have dropped over 10% since 2007 and some are feeling the pinch.
A couple of realtors I know are signed up for courses on foreclosures, as that seems to be a growth industry.
Interesting times…
-
All I can say about Sara is thank goodness I’m not in her shoes. The rest of the year will give a much clearer picture of what is happening, but I would not want to be a debt slave to anyone or thing.
2:30 clip Pachelbel’s Canon in D — a masterpiece no matter who performs it.
Christmas sales in July. If things are not rosy now, what will Christmas be like?
Not quite, but not far off. First para. is good.
Botox mixed with finances. Is this akin to a huge methane explosion? Includes clear, easy-to-read chart at no charge.
60,000 police officers will be gone from the UK over the next five years, civil unrest in various places and more riots. Can anyone see a pattern developing here?
There had to be a reason why one person / company / organization bought all the cocoa options on Thursday and Friday last week. The elite are playing all their best cards at one time.
Curious. With the cocoa market being bought out, now the Carlyle Group is making headway into foods. Isn’t dubya on Carlyle’s board?
UK Housing Crash Caused By Crazy Cocoa Jumping Beans!
CC — an inconvenient July.
Hmmm. Does the east know something that the west doesn’t?
The bigger one gets, the harder one falls. Unless it’s just candy-coating before rearranging the deck chairs on the Titanic.
I have argued for a long time as others have also argued that Flaherty has used the CMHC to try to do exactly what Greenspan did after the Tech Bubble crash of 2000 and post 9-11. The US was in a recession, their economy was in the toilet, Greenspan used housing to create a phony economic sugar hit by creating a housing bubble. What happened? prices soared, home buying hysteria took over and the economy took off. Not only did construction go through the roof, spending went through the roof as almost every American began to use their house as their own personal ATM machine. Considering almost 75% of the US economy is consumer spending driven, the US economy became extremely strong during the bubble years as the home equity spending binge went into high gear. It was a debt driven boom that couldn’t last, that didn’t last.
Fast forward to Canada. The press and the government have been patting themselves on the back telling the world how strong and resilient the Canadian economy has been, especially during a recession. Imagine, a housing bubble during a recession and near world economic crash. This is unthinkable, unimaginable unless you understand that it was all planned. The Conservatives have done here in Canada exactly what Greenspan did in the US, almost to a “T”!!!!! Instead, they have used the CMHC and previously 40 year, zero down mortgages to engineer a housing bubble and to give the economy a phony short term appearance of strength. How will it all end? Just look across the border and you will know.
Interesting read. You can almost replace Greenspan for the Flaherty and the CMHC here in Canada.
“Double-dip looks doubly certain
Commentary: The economic recovery is just an illusion”
http://www.marketwatch.com/story/double-dip-looks-doubly-certain-2010-07-20
RISK and STESS – dear Sara, you have secured yourself a lifetime of it. In order to maintain this lifestyle and granite countertops (remember to re-seal them every year or so…else you will get cracks)…you and your husband must:
1 – not loose your job
2 – not get a demotion and resultant salary decrease
3 – not get significant pay reductions
4 – not have large emergency funds requirements (medical problems, serious house foundation issues, etc.)
5 – not have interest rates raise significantly (% wise) upon your renewal date.
6 – not have significant increases in various and combined expenses (i.e. municipal taxes, heating, electricity, other services.
The odds of any one of these things NOT happening (let alone a combination) is practically impossible…Like the crazy Irish guy in Braveheart says “I think you’re f****d”.
Postscript… “and Sara, you must NOT let any one of these things happen for the next 35 years until you are about 80 years old and out of debt”.
“we have a MORAL obligation to provide the right advice”
Get ready for some heavy capital losses as the dividends get cut on your precious preferreds…
Garth somehow I wonder if people like Sara will have any problems. Doesnt seem so. Interest rates went up a fraction of a point. So she will likely be fine renewing her loan for her house, no?
All this talk of a downturn, um where, Ontario? Look at mls for Calgary. Where is the downturn? Prices arent at their 2005 pre bubble costs are they? No. They are still around $200K HIGHER than the 2005 prices.
Maybe the crash applies to places with no jobs or low paying jobs, but it doesnt appear to have any impact whatsoever on the current cluelessness that defines the Calgary housing market. People like Sara are everywhere. And so remains the current rip off.
Ah, the spin that always gets put on the statement of total debt…
“Other than the mortgage, we have no debt.”
Or, more accurately:
“Other than this MASSIVE, crushing, nearly unserviceable amount of debt, we have no debt.”
Our banks will not fail. And you have nary a shred of evidence that suggests it. At least your gold will make good bling. — Garth
I never said the banks in Canada would go bankrupt, all that needs to happen is a few large loans to go bad.
http://www.businessinsider.com/eric-sprott-no-way-should-you-bet-on-the-banks-2009-11
Have a look at this Radio Shack catalog from 1985 for a a fun and entertaining way to get a sense of the changes in the global economy over the past 25 years. The emergence of the Asian economies has given the world deflation in manufactured goods, such as consumer electronics, along with inflation in commodity prices and everything else that cannot be manufactured in Asia, such as government services, auto repairs, and residential construction.
http://www.radioshackcatalogs.com/catalogs/1985/
Assuming 3.8% interest rate, and monthly payments, Sara will pay $578,000 in interest over the next 35 years.
Knowing that rates are at alltime lows and that she will certainly pay higher rates upon renewal in 4 years, we can be sure that she will actually pay much more than that.
Sara’s goal: “Develop additional streams of income that we can put towards mortgage payments, savings, and ultimately, family obligations when the time comes.”
Can they be considering a rental property next? Oh dear.
It’s too late for the banks to be moral now. We should have had a house buyers strike 10 years ago so that the economy would not get so bad as it is going to be, but it is too late for that as well. Sure, we will have some price inflation for a short time but then prices will fall because no one will buy. At this moment Canadians are trying to sell their boats, cars and houses for unrealistic prices. Yes, your ideas are good but only in a stable market. It is better to wait to buy anything till prices fall significantly. Whatever you want to call it, a depression, a severe recession, it is coming and no investments except cash will be any good. This downturn wiil not be a Grapes of Wrath soupline downturn but it will be bad because unemployment will rise to double digits thanks to lay off of construction and real estate industries.
We used Keynsian methods to stop deflation when they should only use it to help people in need.
#45
((These guys are always on the lookout for things to make money and they’ll analyze that shit six ways from Sunday.))
and they don’t start with big numbers, they start with fractions of pennies, then multiply that by big numbers
Tom Mark et all
let me assure you that most of Federal government workers do not make salaries like that, perhaps the top 5% to 10% the rest of us make under $100K. i am not even close after 30 years!
However, you comment is well taken this kids would not survive in the private sector, and they just barely make the cut in the federal government. I am shock at how stupid many of them are oh well.
to Chatham Chick
The federal government will not lay off any workers it will be all through attrition, almost 50% of federal government workers are eligible to retire within 5 years so why lay off anyone they are leaving anyway.
I have a comment about asset deflation.
If 3 years ago I bought a house for 300,000 amount, I listed it for $500,000 last month, did not sell repriced at 450,000, and took an offer for $400,000.
is that asset deflation?
I do not think so.
Therefore, my challege how many houses out there have sold for less than what was paid.
Oh please exclude speculators.
Just curious on your comments?
because so many people write on here that prices are dropping like a stone, but if they were overprised???
And if they have not dropped below what i paid what do i care??
DELETED
“Get ready for some heavy capital losses as the dividends get cut on your precious preferreds…”
No comment Garth?
Fiction. — Garth
“$90k/year + pension is ridiculous for almost any skill used by the federal government”
Rightly or wrongly, I’m not here to argue, but most RCMP make at least that much when you include overtime. It’s very common.
How much is she paying montly for mortgage, taxes, electricity?
Do they have any vacation with the family, overbord (at least Cuba or Mexico, don’t mention Europe) or camping?
They have parents in neeed?
Can they afford uniform for kids at school, pizza day or milk?
Their kids have some extra-activities (swimming, dance, piano..)
They have frieds over for a barbeque? They have friends?
If she is ok paying untill 60 a house, and do nothing than be slave to work for it, don’t bother!
Life is beautiful!
And yet here in toronto , we have condo mania still going strong… just got a vip from an accountant of mine turned releastate agent last year and is now pumping condo’s in T.o, In talking with my son’s soccer coach who works for Tridal , he says Iranians and chiinese are buying condo’s . Iranians are buying more than one for spec reason I’am assuming. Heard this from some other sources has well. Talk about over building.. Garth we must be seriously over stocked in condo’s in T.O. Do you figure we are at 50percent over built and do you see the biggest correction happening in the condo market…Thanks..
Yeah, the Iranians will save us. — Garth
Another thing that will surely NOT upset Sara’s 35-year apple cart is D-I-V-O-R-C-E. Couldn’t possibly happen.
#65Kanata-you are shocked that Cdn real estate prices have not, after hitting a peak maybe 60 days ago, already clawed back 3 yrs of gains? You are the doomer’s doomer.
#3545north-meanwhile the taxpayer is paying a lot of money every day TO KEEP HOUSING UNAFFORDABLE. That is an important part of the economic plan. Most cannot realize or accept the Ponzi nature of a good sector of the economy.
Hey Garth, did Sara really make the statement “Other than the house and car we have no debt and $25k in savings”?
If so, sure provides insight to what goes on in the head of some of today’s homebuyers! “The mortgage and car loan aren’t really the same as debt, they’re just …ah, well, um…I don’t know…but they’re not debt!”
Kind of like saying, “other than my wife, children and 3 dogs, I have no dependents.”
Also, to #41 Ghost of Tom Joad on 07.19.10 at 11:09 pm …
Tom, like your name. I think you are a bit low on your estimate that private sector programmers make under 50k. Especially if they have a Comp. Sci. degree. I chair the compensation committee for a non-profit and even we pay more than that, and we have NO MONEY (as Dan would say)
“Mark Carney hikes rates, but cuts outlook”
Garth,
Are interest rates going to stay low a very long extended infinite period or what?
They just increased, and there’ll be more to come. You will never again see the bank rate at 0.25%. — Garth
Personally i think we are going through a pathetic “face saving” attempt by a collection of economists,bankers,so called experts,and our political leaders who collectively created this mess. From unrealistic job creation stats etc to bragging about how well things are they hope to calm and pacify the victims and have them flock to their folds………..while they hope for a miracle–and pump out more misleading propaganda….
#53 Jsan,
Indeed. Many of us wrote extensively on the future CMHC problems guaranteed by the recklessness of Harper and Flaherty. Ultimately they will cost Canadian tax-payers millions of dollars in pay-outs on bank guarantees. However they will probably be gone from the political scene long before the accounting on this blunder has been completed. We will start seeing the initial waves in 2-3 years and for years afterwards.
I do believe there is a difference in comparing them with Greenspan. He made is mistakes due to hubris and ideology. Harper and Flaherty were incompetent or worse. By worse I mean they may have understood what they were doing but knew the problems would be far enough away that they would not be politically accountable.
Hey Garth don’t you have any followers closer to that national average annual ”household” income of around $67,000.00? At a combined $180,000 Sara and her hubby are beyond the top 10% of households.
One would believe, from frequenting these blogs, that the national average “household” income in Canada is closer to $250,000. If this is true then house prices are not at all out of line. If this is true the decadence will continue and people will still continue to bitch and complain that they need to earn, no “make” more money in order to be able to buy more crap.
Sara and her hubby can well afford that $800,000 house based on their stated income, if it is true. If half the claims of income I read of on these blogs are true Canadian housing will continue to be substantially higher cost than that of our neighbours to the south. If it is true then it truly is different here.
But something just doesn’t make sense. There is a disconnect between those statements of income posted here and the concerns expressed that causes me to call “bull shit”.
An experienced realtor like you should know income does not equal wealth. And people without wealth should not buy $800,000 houses. — Garth
hi guys.
i am a little worried about one fact. practically, the only ones talking about stable jobs, great pay, etc, etc hold goverment jobs. are the real jobs, good jobs, in the public sector only ? what about the private sector ? is it really dead ?
So what’s the game plan for banks going forward, to keep their profits high?
Most of the debt of Canadians is adjustable rate, with spreads that can be adjusted as a function of “Prime”.
Might we see the “Prime” rate rise faster than the BoC benchmark rate? Most people do not realize that “Prime” is not set by the Bank of Canada, but rather, is something that is set by each individual bank, in their sole discretion.
“Five rules that reform forgot
Commentary: Get your financial house in order”
“In the last 30 years, banks have basically been giving money away. Everyone got to feel special. Why? Because they didn’t have to book the loan on their balance sheets. They were able to securitize and sell them. Fannie Mae and Freddie Mac bought a few hundred billion and sold them as bonds. The banks thought this new system was safe, and now with the government in the business of bailouts, they still probably do.
Bottom line: Regular people don’t get bailouts. If you can’t afford the loan, don’t think the bank cares enough not to lend you the money. They don’t. You need to be your own risk manager.”
http://www.marketwatch.com/story/financial-reform-for-the-rest-of-us-2010-07-20
Garth if you were the minister what changes would you recommend for CMHC and the banks as we move forward from this mess?
#1 DavidL
A very accurate wrap on Victoria’s real estate moves over the decades, which nicely sets the stage for what is to come in this fair community. In otherwords, “there goes the neighbourhood” with its fantasy prices for homes designed to sate the giant egos of bloated retireds and their giant Alberta-licenced pick-ups and RVs. Gated communities anyone, while the starving mortgaged-poor pound on the door wanting to eat the cash-rich?
Right across the country, we will see a cacaphony of home-price weirdness over the next period of time, now that Mr. Carney & Co. have deigned to ding Canada, including its RE industry, with another quarter of a point of price pounding.
This inspite of the Governor’s realization that housing, and the rest of the economy, is slipping. He’s just nudged it off the cliff a bit faster is all!
Good on him I suppose if, in the macro sense, it brings balance back into things. Unfortunately a lot of hurt will result from that rebalancing act. Rebalancing, however, is not assured because there is a lot of OTHER economic “noise” out there, most of it outside our borders, meaning we have so little monetary control over our collective destiny.
EG: look at Goldman Sachs, and IBM, and Texas Instruments, all reporting terrible Q2 balance sheets. But never fear, the Wall Street minions have dug out that pig’s lipstick again and are smearing it all over Hell to get that Dow back up into positive territory by the end of this trading day. You can count on that, right? Can’t you?
Sara,
Like many posters I found this statement to be a red flag. In Garth’s quote you said, “very fortunate and stable, with great jobs ($180k gross) in the federal government.”
Are you sure these jobs are stable? Or at least stable at those salary levels?
The gov’t is going to be freezing more salaries and eliminating more positions in the years to come. Obviously I don’t know your details but I would not be counting on stability or raises that outpace inflation over the coming years.
“OTTAWA—The Bank of Canada has hiked its trendsetting interest rate a quarter point to 0.75 per cent, while issuing a more gloomy outlook for the economy and raising questions about where rates are headed next.”
I guess, the only thing left is to determine how big a wet blanket to throw on the recovery.
“The Ontario government is killing the latest round of controversial its eco-fee scheme. Charges on potentially toxic household products and going back to the drawing board.”
This is amazing!! A government that can’t impose a tax. And it’s not like this Ontario Government has not had any experience in raising taxes ( $1000.00 health fee, the $900.00 per family HST ).
Honestly, the mainstream press reads like Absurdist fiction sometimes.
In “Waiting for Godot’” one of the characters gets ….. a carrot.
I guess we’ll all have to settle for the stick ….
at least it’s something.
.#41 Ghost of Tom Joad on 07.19.10 at 11:09 pm
That’s pretty obscene. Two fed jobs = $180K? I work in software in private sector and programmers make under $50 K with ten years experience (no benefits). We appreciate $50 K and realize this is reality in the industry. No wonder why our taxes are so flipping high and our debt so huge. Must be nice to be a fed!
Stupid me — went into wrong industry.
Recall in 78 when I worked for prov. govt. that my equivalent position earned $10K more with the Feds. and they had better benefits.
Re your salary, my husband is a Tech Support Supervisor with a School Board. His techs and he, ultimately, are responsible for about 2000 computers and oodles of servers, etc. He also creates programs, on his own time, to increase efficiency for not only he, his techs, but also the SB. He’s not unionized, no indexed pension plan, and earns about $58K. He likes the challenge of learning new programming languages and doesn’t want to lose his skills.
I retired 7+ yrs ago from our prov. govt. as we went thru 4 restructurings within 5 years, cut back in pay of 3%, etc. Bought back 2 yrs of Fed Service so I could get out. Morale was worst I’d ever seen it & I ended up dreading going to work. We were debt free. Considered all paycheck deductibles, taxes & costs of working. I didn’t lose much. No regrets. BTW, I’m 9 yrs older than my husband.
#79 avenirv,
Regarding your comment on public sector versus private sector jobs. You make a good point.
The reality is that the economy can only grow through private sector jobs. They are the first hit in a recession, particularily small business.
My view is that gov’t jobs will increasingly flat line and be eliminated due to the high gov’t deficits. Trimming gov’t spending at all levels has already begun in Canada but is rampant in the US where many states and municipalities are bankrupt.
I believe that in 2011 we will start to see more programs and gov’t support for private sector employment. I suspect the gov’t will have to look at expanding loan programs like the BDC and the EDC as the banks just aren’t lending to anyone. Otherwise we will never get out of this mess.
In the meantime, yeah, the private sector is scary.
PS to my previous post. Although I had an indexed pension, this year we are getting zero, Next 5 years 1.5 and then may lose indexing, depending on prov. finances. I know some on this blog will cheer.
#65 Kanata
If 3 years ago I bought a house for 300,000 amount, I listed it for $500,000 last month, did not sell repriced at 450,000, and took an offer for $400,000.
is that asset deflation?
I do not think so.
Oh my, of course its deflation its value has fallen from its peak. As a matter of interest, how much have you paid each year to hold this house (interest that is). A very simple rule to actually make money is to make sure your holding costs don’t exceed its cashflow and appreciation. Using your logic if a retiring couple paid $2000 for their house in the 1940s, should prices not fall below their purchase price then thats ok – LOL.
Aussie Update.
http://www.smh.com.au/business/foreign-punters-spooked-by-perky-property-market-20100719-10hwp.html
http://www.smh.com.au/business/why-economists-didnt-see-the-big-crunch-coming-20100716-10e62.html
http://theage.domain.com.au/real-estate-news/bubbleburst-fears-rise-20100715-10bod.html?autostart=1
As always great article Garth..
More anecdotal evidence of the unfolding deleveraging taking place across the land. Lunch with business partner and the usually busy spot was d e a d. The Hostess said that the staff was freaking as they know cuts are coming. We are looking for a new office and the leasing agents are being generous with incentives and are willing to deal. Both of the above would not have happened a few years ago.
Interesting, on the very day rates are going up and real estate is taking a hit, the house 2 doors away sells for $425 000 – in a small town almost 2hrs northeast of Toronto. Its a mixed up world!!!!
Sara unfortunately is a reflection of the generation I am apart of (early 30′s). They don’t seem to look at housing or car debt as actual debt but just a number on a screen that is a fact of life, it is the norm now, part of being a young adult. You get married, have kids, take on some car debt to fit the kid, take on some mortgage debt to buy a house; it is all part of the process for them.
With money being so readily available during their major purchase years, and the years prior, they have watched others enter into the world of debt and have accepted it as all part of life’s cycle.
My wife and I have always been able to “afford” a bigger house or nicer cars or whatever. But we have always acknowledged that the money does have to be paid back. We were even a little uncomfortable with the mortgage we took on 4 years ago (even though it was way below what the bank would give us) and have been aggressively paying it down during these low rate times (we are on a variable). We paid off student loans with money we got from our wedding, we paid off my wife’s car loan with savings in the early part of our marriage and we have been putting money monthly into savings since we were about 20. (although it has performed like garbage).
I’m not looking for a pat on the back or anything, I wanted to show that while we are not perfect there are others out there who have not killed themselves in debt, do have savings (modest amount I would guess) and that while I don’t agree with Sara I can certainly understand where she is coming from, being part of that same age cohort.
@ 78 Devil’s Advocate
The topic(s) of the blog assume a reasonably high income. If you are going to talk savings, investmenst and real estate (and actually be in the game), you generally have to be high income or you have to possess an incredible amount of financial self-control/savvy. Everyone else is just wishing.
This blog tends to be about, “I have money or earning potential…so what do I do with it?”
I wonder if there is a serious blog about, “I have no money and low earning potential…so how do I increase it?”
#93 Prof ANON on 07.20.10 at 9:58 am
I hear ya and don’t entirely disagree but, based on the many comments posted here, clearly there is a high number of Blog Dogs who do not own a home. Given that roughly 70% of Canadians own and that generally those homeowners are likely of an average higher income than the non-homeowners is the country… well something seems amiss to me.
Ad to that my own experience dealing with buyers and sellers of homes on a daily basis, a part of which the qualification process involves at least a general understanding of those peoples income bracket, and I still can’t resolve the discord I suspect. But then I live and do business way out West where we tend to put more value of play and less on moving on up that corporate ladder which is why I never moved to the big smoke. So what do I know?
“Bankers suddenly didn’t just get religion through immersion in a body of water. They didn’t simply just grow a moral compass”
Exactly. Geez.
I imagine what they are looking at behind closed doors is not their ‘Pocket Guide to Morality and Upright Thinking’, but what Banksters always look at – the numbers.
And I would expect that those numbers are looking uuuuugly right about now, and they are projecting forward what happens under various scenarios where Canada’s economy slows down and consumers are less able to service debts.
Down there on the bottom line, there is a vast amount of forward risk. They aren’t saying it’s time to cut back on the lending for moral reasons, it’s just business, and business is bad.
I have heard they will negotiate now., like they have in the US for years. In other words, if you owed $10K on a card and you phoned and said, “hey, I’m going bankrupt, I can give you $6K now, or maybe you’ll get something later” they’ll take it. That shows you how bad it is, recovery rates are likely falling and number of cases soaring. They are probably hiring in collections, if you need a job bad.
The only thing that scares a Bankster is the prospect of falling profits and a reduced bonus.
Hi Garth,
First time poster, long time reader. I just wanted to thank the only federal candidate who came to my door back in 2006 – if only events had worked out better for us. I also wanted to thank you for the level headed, sane advice that you are dishing out for free here. Thanks to blogs like yours I was able to convince my wife that our debt was evil and a liability and in 5 years we paid off the remaining 15 years of our mortgage. Its amazing what that lack of debt has done for not only our financial situation, but our overall family dynamics. Ever thought of going into marriage counseling?
Doubtless I’d be as good as that as I was at politics… — Garth
Where is this #90 Bill Gable?
#93 Prof ANON on 07.20.10 at 9:58 am
I wonder if there is a serious blog about, “I have no money and low earning potential…so how do I increase it?”
Well many years ago that’s where I started, moving from skilled labor job to job for a few cents more. Then started retraining for tech positions and moved from job to job for a few dollars more.
Along the way it was important to learn how to cut money out of income to put aside for savings. With modest saving it was also important to look for ways to make money with this money. Mostly buying/fixing and selling stuff, but also taking advantage of employee stock purchases. Did I risk savings? Absolutely, but not to the point of lossing sleep.
Marching to the beat of a different drummer, I was not interested in having a pile of money to look at but I was always looking for ways to find more time to do more things. Greatest payoff was nine years as stay at home dad to raise my son.
My goals may have been different, but like minded friends of mine also followed the same path. Shut off the TV and do something productive, hell you might even have fun where you least expecting it. Also in the best of health for my age bracket, what a bonus!
@94 Devil’s Advocate
I see the same disconnect as you. I think what we are sensing is a combination of three groups of people.
1. Wishing Renters: low income/low potential as a result of their own life choices. Vocal, but not really putting the rubber to the road.
2. Working Renters : Folks who work hard every day and are trying their best to make the right financial decisions. Probably are actively searching for ways to increase their earning potential as well.
3. Recently “Made” Renters: People who put a lot of time and effort into gaining skills/experience/education and have recently landed a high income position. Currently trying hard not to mess up what they have and trying hard to get rid of any debt they may have accumulated along the way.
Just for context, I’m category three.
Call me silly…
I try to stick it to the banks whenever I can. Public duty and all that.
As an avid airmiles collector, last month, a certain bank was offering 1400 airmiles to anyone who would open a certain savings account for a minimum of 10K. No prob. Just transfer from one account to another…?
Uh oh. Not quite. They realized a “mistake” had been made. So, the money NOW had to come from “another bank.’”. No prob.
They really thought they had me.
So, my daughter wrote me a cheque for 10k and I wrote her a cheque for 10k. Presto.
My wife also opened a line of credit and received 500 airmiles for this….
So, when I think of how the Canadian banks screw the consumer by borrowing from the BoC at obscenely low rates and re-lending at exhorbitant rates, I’ll do what I can to get my pound of flesh.
#41 Ghost of Tom Joad
Programmers making <50k + no benefits w/10 yr exp? If you are in Canada that is way too low, time to change companies you are selling your services for way too low.
#80 Mark on 07.20.10 at 8:52 am So what’s the game plan for banks going forward, to keep their profits high?
Let you in on a little secret…. listening to the radio ads and I hear that if you are new to the country with no real grass roots anything, walk into a bank and tell them you are working in a field picking berries and you want a Credit Card…. I bet they will give you one. I hear these ads on the radio and say to myself…. sucker born every minute… but who are the suckers? the guy who gets to live for free on the banks nickle or the people who have cards, jobs and 18% interest rates who are paying for these “new” applicants? the banks of course don’t give a shit cuz they bundle the Credit Card debts and still sell the debt to sucker investors…. and so the wheels of BS keep the world spinning….
“Pirates of Nopants” (The bankers song)
Fifteen men on a dead man’s chest
Yo ho ho and a bottle of rum
Drink and the devil had done for the rest
Yo ho ho and a bottle of rum.
The mate was fixed by the bosun’s pike
The bosun brained with a marlinspike
And cookey’s throat was marked belike
It had been gripped by fingers ten;
And there they lay, all good dead men
Like break o’day in a boozing ken.
Yo ho ho and a bottle of rum.
. Fifteen men of the whole ship’s list
Yo ho ho and a bottle of rum!
Dead and be damned and the rest gone whist!
Yo ho ho and a bottle of rum!
The skipper lay with his nob in gore
Where the scullion’s axe his cheek had shore
And the scullion he was stabbed times four
And there they lay, and the soggy skies
Dripped down in up-staring eyes
In murk sunset and foul sunrise
Yo ho ho and a bottle of rum.
Fifteen men of ‘em stiff and stark
Yo ho ho and a bottle of rum!
Ten of the crew had the murder mark!
Yo ho ho and a bottle of rum!
Twas a cutlass swipe or an ounce of lead
Or a yawing hole in a battered head
And the scuppers’ glut with a rotting red
And there they lay, aye, damn my eyes
Looking up at paradise
All souls bound just contrariwise
Yo ho ho and a bottle of rum.
Fifteen men of ‘em good and true
Yo ho ho and a bottle of rum!
Ev’ry man jack could ha’ sailed with Old Pew,
Yo ho ho and a bottle of rum!
There was chest on chest of Spanish gold
With a ton of plate in the middle hold
And the cabins riot of stuff untold,
And they lay there that took the plum
With sightless glare and their lips struck dumb
While we shared all by the rule of thumb,
Yo ho ho and a bottle of rum!
More was seen through a sternlight screen…
Yo ho ho and a bottle of rum
Chartings undoubt where a woman had been
Yo ho ho and a bottle of rum.
‘Twas a flimsy shift on a bunker cot
With a dirk slit sheer through the bosom spot
And the lace stiff dry in a purplish blot
Oh was she wench or some shudderin’ maid
That dared the knife and took the blade
By God! she had stuff for a plucky jade
Yo ho ho and a bottle of rum.
Fifteen men on a dead man’s chest
Yo ho ho and a bottle of rum
Drink and the devil had done for the rest
Yo ho ho and a bottle of rum.
We wrapped ‘em all in a mains’l tight
With twice ten turns of a hawser’s bight
And we heaved ‘em over and out of sight,
With a Yo-Heave-Ho! and a fare-you-well
And a sudden plunge in the sullen swell
Ten fathoms deep on the road to hell,
Yo ho ho and a bottle of rum!
I hate to lob stones at other people’s choices but an $800K house is an unnecessary luxury. Wasn’t there anything decent for $600K
? @ 3.84% and a 35 year amortization that’s $3,100 a month. A jump in rates to 7% will take that puppy to $4,600 a month. No doubt there’s something better than a couple of 10 year old Cavaliers in the driveway…
Are these real people, Garth?
#84Junius-don’t hold your breath waiting for guv layoffs. Look at a place like Detroit-bankrupt with 50% unemployment and literally 95% of the jobs are with the government sector. By the time the guv sector cuts back in a meaningful way in a jurisdiction like e.g. Ontario, the private sector will have been razed first.
The Bank of Canada raised its benchmark interest rate by 25 basis points Tuesday, the second straight time it has done so after keeping rates at unprecedented lows for more than a year.
In its latest policy decision, the bank opted to move its overnight lending rate to 0.75 per cent. The bank had previously raised its benchmark rate to 0.5 per cent in June after having kept rates at emergency lows since April 2009 in an attempt to stimulate the economy and spur lending.
In raising the rate, the bank moved to lightly hit the brakes on a Canadian economy that has shown signs of significant strength in recent months.
http://www.cbc.ca/money/story/2010/07/20/bank-canada-interest-rates.html
#58 bullion.bunny
“At least your gold will make good bling. — Garth”
BB – Actions are louder than words. The 10 year gold chart says it all.
#78 Devil’s Advocate
…One would believe, from frequenting these blogs, that the national average “household” income in Canada is closer to $250,000….
Stop with the smoke buddy.
#58 bullion.bunny
The issue is not the banks but govenment debt. For example, the US owes in excess of $100 trillion. The government is techically bankrupt. Only way out is to print money! This is very very bullish for gold.
#95 Got A Watch…
I disagree, I think the banks realize it is not a good long term solution rather than any short term losses they may have seen, because I don’t think they exist.
I had a breakfast meeting with a senior sales manager for RBC last week. He told me at a conference he attend the week prior that while foreclosures are up with RBC and banks in general, their net losses are at an all-time low. CMHC is backing them on the majority of their foreclosures due to their sound lending practices. He said they want more mortgages, but obviously the market does not want to buy right now.
I think the banker who wrote to Garth is likely pointing to an overall shift in their business model in the long term as they see less profit and revenue in managing people’s debt and a movement towards managing people’s savings.
#89 Aussie Roy, thanks for the links. Appreciate the perspective from Down Under…..keep ‘em coming.
By the way, have you been watching “Selling Houses: Australia”…?
I recently downloaded and watched all of Season Three….that show just cracks me up. True bubble psychology displayed by the homeowners…..
Sara is screwed, blued and tattoo’d as we say out west……..already upside down……
“If” they were able to sell their albatross, the RE commissions at 7/3% would eat up $25-28K of their $80K of equity, and the remaining $55K would be swallowed by the 5-10% discount that has become a common concession given by vendors around the country, in order for a home to be sold.
And we haven’t even asked if they have an open or closed mortgage…….which potentially means pre-payment penalties if it is a closed mortgage.
Cue the fat lady…….
I’m a very proud Canadian but my fellow Canadians disappoint me for the following 2 reasons:
1) ‘Stop the HST’ petition gets 15% support (only require 10%) and BC government essentially tears it up.
No response from my fellow Canadians. We just roll over and take it…yet again.
2) The extend of delusion about the economy.
I grossly underestimated how blind, ignorant and ….hmmmm…well…easily manipulated (by are reckless media) Canadians can be about the real estate bubble even when we have a SHINING example of what can and likely WILL happen to us…right next door in the U.S.
Wake the F up already!
Come on, lets get back to sanity. I’m sick of waiting for the market to come back to it’s senses.
You sound like a descent kid Sara. But I’m thinking the apples are not falling too far from the tree.
People are quick to see immediate danger but very poor at seeing long term danger.
Maybe sit down and do an honest spread sheet and see where you are headed, if you’re talking about other sources of income with what you make now, I think there is trouble ahead.
You may be living your dream now but you may be living in a nightmare before you know it.
Instead of increasing your income I’d be looking at ways to get what you have under control. Its much easier.
There is no way you should even consider a 35 year sentence, WHAT are you thinking?
Again, look at your parents.
And you are taking/listening to advice/judgement from friends and family?
Be your own person Sara, be your own judge.
Set the standard high, this could end well.
Iranians, Chinese, and Koreans will not save us. I just spent a month in Cebu City, second largest city in the Philippines. I almost bought a new 3br apartment apartment for 25k US. It was built to western standards, very comfortable. My neighbors would have been mostly Chinese and Iranian. They are buying up entire subdivisions of homes. The hotel I lived in was Korean owned, I met the owner. Westerners are moving there in droves. I met lots of Australians, Americans, Germans, British, and a few Canadians.The same thing is happening in the smaller provinces and cities and the prices are even cheaper than in Cebu. I think this trend will continue. The Chinese and Iranians will not save our inflated real estate market.
I think a lot of people on here are confused when they use the terms “inflation” and “deflation”.
Manufactured goods from China coming into North America do not represent “deflation”. That’s just the global economy at work. Yes, we’ve trimmed our expenses when it comes to this stuff because we’re more efficient with productivity. This is just technology at play.
If a more fuel efficient car surfaces that is more fuel efficient than anything on the market, and we all bought it, it doesn’t make gasoline for cars cheaper, it’s just a reflection of productivity through technology.
As far as inflation goes, this is what we’ve had for many years. Expanding balance sheets because of more credit. The cost of living has increased. If the goods manufactured today in China were manufactured in North America, we’d see that the price of these goods would be much higher than they were when they were manufactured in North America decades ago.
We’ve battled inflation for many years. There’s no mixture of inflation in toilet paper and then deflation in coffee cups etc. Expanding or retracting credit tells you whether there is inflation or deflation. Some items do decrease in price during a credit expansion but that is simply due to productive efficiency.
http://www.youtube.com/watch?v=jkJQ9fooYKA
Coming soon to a suburb near you
#65 Katana
Asset delfation is all about optics.
Timing has a lot to do with it but lets consider YoY #’s.
If the assets-home price declines YoY, it takes the momentium out of the markets.
Here is a rule for all sellers.
Sellers almost all of the time HAVE TO SELL. BUYERS never NEED TO BUY.
People can survive without buying RE but many people can not survive (financially) without selling. Take a flash back to early 90′s in Ontario and you will see that its true.
Personally, I sold 2 years ago not because the market was losing steam or because I had too , but because at that time in my personal/professional life, it was the prudent thing to do.
Will I buy again, sure at some point I will, but I do not need to buy.
#74, most CS or engineering degree grads I know from the past decade haven’t been able to find jobs at all, nevermind $50k jobs. Would you care to share where all these jobs are? Resumes don’t even get responded to these days, and the people I know send out dozens of them a week.
In response to #65 Kanata, just an anecdote from Calgary. My neighbor bought her house 3 years ago for $440,000. She listed it for sale over a month ago at $360,000 and so far no interest. Is that asset deflation?
Doubtless I’d be as good as that as I was at politics… — Garth
You were a great politician .Your party was hijacked by a bunch of mobsters .
You has no way of knowing the CRAPISTS would rule .
You are the prototype of what makes a ‘good’ politician .
Sara & hubby make $180k, which sounds great but it puts them in the worst tax bracket, so net isn’t quite so impressive. Then they can only save up 25k and still owe on the car, so they’re spending way too much and are unlikely to change until it’s forced upon them.
If/when the recession worsens and federal tax revenues fall far enough, the Fed govt. could reduce salaries by ten percent, as in the 80′s. But for Sara & hubby, it’ll be a twenty percent reduction in household income.
A lot can happen in thirty-five years. I’d be surprised if they make it.
# T.O. Bubble boy,
Federal government employees receive 93% of their salary while on mat leave….. that means they would still be making 173K year while off on maternity leave….
also coming to a suburb near you
http://www.youtube.com/watch?v=VgTdxEGauok&feature=related
the new iphone dropped $10. Oh my god, deflation!!!!!!!
Some of you people are ridiculous. This word is not being used in the proper context. Not everything can be attributed to deflation or inflation. You’d have to delve into a company’s whole production process and operation to possibly understand why they’re able to trim their sale price on an item.
A house, that was purchased for $300,000 that went up to $450,000 and then dropped to $400,000 doesn’t represent inflation and then deflation. That’s just the market of the asset – sometimes it goes up and sometimes it goes down.
We’ve had credit expansion (inflation) for quite some time -especially in the last decade. Recently, credit has been contracting (not as rapid in Canada as in other countries), so we’ll start to see falling prices in all goods in general (not every single thing obviously).
Deflation and inflation are terms used to depict the overall economy. They’re used to describe the broad spectrum.
Hopefully we’re not going to have people walking through home depot saying “oh, we have deflation in blinds honey” then wife says “honey, I think we have inflation in screw drivers”
Inflation has been around for decades in North America. That world changed in late 2007. Credit markets got killed and now there’s a GENERAL, slow moving shift from inflation to deflation as less credit is available. It’s a slow, turtle-like process, not something that flip-flops from day to day with different asset classes and different products on shelves.
The problem with alot of the sheeple is that they have no concept of preparing a budget let alone following one.
All they do is spend on the credit cards, or transfer payments from one card to another. Some have become quite good at it, and are actually proud of how well they juggle their payments. WILD!!! ( HOW ABOUT CUTTING UP THE CREDIT CARDS YOU FUCKING IDIOTS)
Can’t spend what you don’t have and probably 3/4′s of you wouldn’t be in the mess your in.
Sarah sell your place as soon as possible, you are going too lose it any way when the market corrects. Just the cold hard facts. Whoever approved you for the loan had the morals of a SNAKE OIL SAILSMAN.
As far as the executive banksters ” MOST OF YOU ARE ALL PIECES OF SNAKE EXCREMENT” Putting false hope into the SHEEPLE knowing the outcome of your actions down the road, all because the BEAN COUNTERS said its still doable with profits when you average it all out.
Make you all get it back 10 fold. Truly wonderous spieces you are sucking the blood out of sheeple then moving on without even a care as to what you done.
Now you want to make up for it, HOW ABOUT COMMITTING HARA KIRI.
Most of the Sheeple got themselve in to this mess and now are all going to be crying like LITTLE BABIES, asking for help.
Here’s a tip GROW UP , get out of the LALA land you have been living in.
Cut up your credit cards, If your going to go bankrupt do it don’t prolong the inevitable, carry on learning from your mistakes.
LIVE WITHIN OR MEANS.
And finally Chet, nice to see someone out there still has morals and principles. Hang on to them, because once they are lost it is very hard to get them back.
#4 Sally–gov’t pensions are based on many factors–age and years of service are two of them along with your best 5yrs (60m) of wages–too many variables to list here but after 25 to 30 years some of those pensions aren’t so great–
if you have friends in the gov’t service, ask to see one of their pension statements (they probably won’t show you)–it’s a yearly statement showing their projected retirement date and projected pension income—it will surprise you how small some of these pensions are after 25 to 30 years service
#68 Joe–correct to say RCMP easily make 90k+ in wages and overtime but the fact is overtime wages are not pensionable wages
Yeah but I sure wish I can make $180k, or even 150k, in fact I would be so happy to get even $90K a year. I don’t know where the hell these people graduated from. Sure are lucky bunch!
>#49 Harry Cho on 07.19.10 at 11:48 pm
>“180K Gross” that’s what the total morons told you in >their email. LOL
>I am so sick of people talking about how they make
>90k, 150k, 250k. Listen up folks, it does not mean
>crap how much you make.
>It’s all about HOW MUCH COIN YOU BANK at the end of
>the year after all your taxes, mortgages and bullshit
>expenses
Garth,
Great post again…
I am happy that I didn’t fall into the trap…thanks to your advice…
$25,000 G’s in savings . Hardly. You owe 800,grand. That money is not yours . It belongs,rightfully,to the bank .
You are in for a world of hurt lady .
Miss a couple of your over blown payments and see how fast the bank seizes the twenty five G’s .
Advocate:
I’d hazard that if you actually went through the 28 months of Garth’s posts and pulled out the consistent blog dog commentators and mapped them into owner and renter categories, you’d barely have a statistically-significant study on your hands.
What’s the number of consistent commentators here? _Maybe_ 50? Out of a readership of what? (Unless ultimately disclosed by Garth, it could be the same as the number of individual commentators or orders of magnitude higher.)
No, Devil’s Advocate, what you have here is a great example of clustering. There are sub-groups here with some polarized views and the frequencies their messages are repeated here are high.
But if you or anybody else wants to take a handful of user names and whitewash large swaths of the undefined readership, please go ahead. It will just serve to undermine any credibility in an open discourse and just increases the level of noise.
As evidenced recently, the signal-to-noise ratio in the comments has worsened. I don’t believe anyone really has an issue with people playing a role as provocateur, especially if it adds to the discussion. The issue is when statements are make by certain blog dogs just to be jerks (at worst) or which are insensitive, incomplete or narrow thoughts (at best).
Everyone else’s mileage may vary.
#41 Ghost of Tom Joad
I am not a teacher or a civil servant.
2 teachers in Ontario at “max cat” make $180,000 gross per year ($90,000 x2). Max cat is about 10 years into the job.
Teachers are unionized, but then again so are most civil servants.
I agree that you got into the wrong industry (like most of us). Jobs in your industry can be easily outsourced, so wages are kept obscenely low due to “globalization” and a high degree of competition from others in low-cost countries (India, to name just one).
Teaching (like doctoring, lawyering etc.) does not lend itself easily to outsourcing as the work must be completed in place.
Hey Jeff Smith, never despair just apply for one of them cushy guverment jobs.
Soon you will be makin the eazy money too. But just make sure you BANK MOST OF THAT COIN at the end of the year.
Trash your debts and cut your expenses to the bare minimum and you will be BANKING MORE COIN then those morons making “180 K Gross”. LMAO
#108 Mark on 07.20.10 at 12:05 pm..
Mark I can’t tell you where “all these jobs are”, but I can tell you my experience in recruiting IT people…
As mentioned, at the cash-strapped Non-Profit where I chair HR & Compensation, we can’t entice anybody with decent skills for less than 50k.
In my past life as an IT Exec, I recall we paid 50k-75k (plus bonus) for programmers & BA’s depending on skills; 70k – 100k for Sr BA’s and system specialists i.e supervising staff, and 100k+ for experts.
Generally we found it hard to get top people at those salaries.
Having said that I know lots of sweat shops pay less, not sure how (or if) they get good people
Anyways, doesn’t matter. If one is not making even 50k, one certainly won’t be buying a house these days
#111Dave-No. An asset like real estate is very dependent on credit growth, unlike e.g. groceries (people are not leveraging their food purchases).
“A man can be himself only so long as he is alone; … if he does not love solitude, he will not love freedom; for it is only when he is alone that he is really free.”
[Schopenhauer, "The World as Will and Idea," 1818]
Why is everyone dissing Sara? I don’t get it. They have great paying jobs and relatively great job security. They can well afford an $800,000 home. I know of a lot who do so on a lot less.
Seems to me there is a lot of jealousy on the part of a good number of Blog Dogs who seem to be pining away the hours hoping the economy takes down the “haves” and redistributes their wealth it to they who are “have nots”. If that were to happen I think it is going to hit a lot of them a lot harder long before it does Sara and those like her.
I don’t get it. While I wouldn’t be running my financial affairs the way she is, there are a whole lot with a lot less who do. Sara sounds young with a world of opportunity still ahead of them. So their home might drop in value putting them in negative equity… eventually sometime down the road it will bounce back. While we may enter some dark economic times chances are they will not last longer than four or five years. Hell even a decade is no big deal for a family with so much life ahead not to mention high paying stable employment.
You gotta live somewhere and anywhere you do is going to cost you something. It’s just a matter of what you can afford. They gross $180,000 a year in secure government jobs for cryin’ out loud… they are far from destitute and certainly have enough economic strength to weather such economic storms better than most. It’s income they haven’t yet but are most likely to earn. Unless they go out and gamble it away they have the cash flow to hold on while they learn more prudent financial management techniques.
What am I missing?
Why is it so difficult ?
Inflation: More MONEY (not debt) trying to buy same (or less) amount of GOODS
Deflation: Less MONEY (not debt) trying to buy same (or more) amount of GOODS.
Prices are a result not a cause of the problem.
Debts, credits and every other “inventions” are a result of brainwashing, to makes us beleive “we are richer than we think”
Debt = buying the present with your (your son’s) future.
We have more debt/credit because the Chindians are sending back (in the form of credit to be repaid at some point) a portion of all what they collecting from our consumption. Just to keep the party on going.
Then, if today we have less money available to buy same amount of goods,…. What is waht are we going through ???
#101 Keith in Calgary
“the RE commissions at 7/3% would eat up $25-28K of their $80K of equity”
but you keep telling us that realtors are not necessary. So there’s $28K in their pockets.
and if they FSBO it, they sure as heck won’t be pricing their property too high. So there’s another $50,000.
Sara just made $78,000 by selling it herself.
Stagflation is a wrong concept. It is deflation maskared with inflation, because prices rise with decreasing incomes, but increasing debt/credits. Remember debt is not money, it is an obligation in the future.
#104Dan-IMO you do not understand how important a status symbol an expensive home is to many women-even the existence of an extremely large mortgage outstanding is often a source of pride. It simply makes a lot of women feel very important, which is why the continual comments that this is illogical are almost always coming from men. Here is an illustration: you are going to get an annual cheque from the federal government for $100000 each year for life-the only stipulation is that during the year you cannot live in a principal residence valued at more than $100000. This would be a dream for most guys and an absolute prison sentence for many women.
#140 – Devil’s Advocate:
You are missing the part about average Canadians paying 145% of their income servicing their debts.
” $800k with 10% down and a 35 year amortization. Other than the house and car we have no debt and $25k in savings. ”
#140 Devil’s Advocate – What am I missing?
Do you know what is the meaning of living out of means? Living rich and saving poor. This is not a lifestyle that is debt style.
#140 Devil’s Advocate on 07.20.10 at 1:37 pm ..
Agree, some unfortunate people frequenting this blog, hoping for a world-order-changing crash (that will never come) so that the bankers, RE agents, rich people, etc, etc will get their “cumupance”. (by the way I’ve no idea how to spell that word, but it has a nice, Montgomery Burnsish ring to it)
As far as Sara’s situation, can’t agree on that one. After tax they pull in $9500 / month. The carrying cost of the house is probably $5000 / month all-in.
-$3000 debt servicing
-$500 property tax
-$1000 all utilities and insurance
- $500 miscellaneous mtce (plus I’ll bet she has a cleaning lady)
All these costs are going up.
That leaves about 50k per year to cover every single other cost. (like food, gas, cell phone, entertainment, travel, gifts etc, etc). They will spend it all, and more.
I’d be willing to bet they’re in deeper debt in one years time.
Devil’s Advocate says “Unless they go out and gamble it away”
Levering up on Real estate 10-1 is gambling in my world.
Why would you be encouraging people to suffer through years of hardship? You truly “don’t get it “
“An experienced realtor like you should know income does not equal wealth. And people without wealth should not buy $800,000 houses.” — Garth
Garth; I know young professionals who finance million dollar homes with little more than 5 -10% down. They have the cash flow and it is generally a pretty secure cash flow. Eventually it will, with reasonable financial management, grow into wealth. I don’t think an $800,000 home purchase when your income is $180,000 is nearly so out of line as the many $65,000 annual income households, who’s jobs are no where near as secure, who bought $550,000 homes here in Kelowna. Do the math… But oh no we condemn Sara and pitty them. Hell we’ll probably bail those underwater $65K income earners out at the end of the day and it will be Sara and the likes who write the cheque through their taxes.
Just seems to me that we’re missing the forest for the trees here. Don’t get me wrong I wouldn’t be doing it but that doesn’t mean Sara shouldn’t if that is what makes them happy. Hell government jobs = pension = some damned fine security. What’s the worry comparatively speaking?
Wish I was them. I’ll trade my “wealth” for their youth and financially precarious position any day .
Speaking from experience, VERY FEW federal public servants in their 30′s earn $90,000 per year, unless they are lawyers et cetera.
Would everyone be ripping on her if the story was 90k wages and 360k mortgage?
I don’t think so.
The fact of the matter is her household income is fantastic, their jobs are some of the most stable in the country, and they live in a great location in a great city.
I think a lot of the posters above have some jealousy problems.
Garth your time in Parliament was outstanding .
You threw open the doors, of what is basically a closed,cloistered society, and allowed light to shine in its dark corridors and corners .
I miss the daily Webcasts from the Parliamentary precincts .
Your riding was never confined to just Halton .The entire nation was your bailiwick .Coast to coast to coast.
As the first blogging,broadcasting MP you have much to be proud of .
Like all geniuses you were way ahead of the curve .
Look now at how much the Kon Klowns rely on the net to spew their propaganda,hatred and filthy lies .For better or worse you are partly responsible . You taught them the power of the message and the medium .
You didn’t fail, your party did .
#140 Devil’s Advocate…
You are missing:
1 – demographics trends
2 – great ressession
3 – deflation
4 – rising interest rates
5 – like the scarecrow – a brain
#140 Devil’s Advocate……
You could have saved yourself the trouble of making that entire post by just keeping your comment……..”While I wouldn’t be running my financial affairs the way she is”…..instead of the rest of the diatribe……for with that statement you completely discredited what you were trying to say.
#142 Brass Balls……
Feeling a tad guilty over the amount of money you clowns make for doing nothing at all are yah ?
Successful FSBO’s set their initial asking prices to be below the lowest MLS comp in their area because they have no real estate fees……..so, she still loses if she does it right. Overpriced FSBO’s don’t sell…..just like overpriced MLS listings……still a loss.
DELETED
#147 Renting in Rosedale: good cost estimation, but they’re also contributing about $500 each per mth into their pension plans, so they have $1,000/mth less than you estimate.
Devil’s Advocate: “What am I missing?”
Your unexamined bias.
#134 Another Albertan on 07.20.10 at 1:21 pm
Admittedly my observations are nothing more than crude estimates which carry little credibility against such a scientific study as you propose. It’s a gut calculation on my part nothing more. However based on the previous “Buying vs. Renting” thread there, I think, is good reason to suspect that there are a great number of posters who do not own a home for one reason or another.
I do agree with you that the “signal-to-noise ratio in the comments has worsened” which is why I am trying to point out that the Sara case study is a moot point in comparison to the so many young families with far less stable jobs and a fraction of the annual income who have been conned into buying into the real estate hype believing their lives will be enhanced by stainless, granite and hardwood on a postage sized lot in a house built of cardboard.
Sara may have made some poor financial decisions but she certainly has the cash flow to weather the storm. To be earning a combined $180,000 per year at their age they must have made some good decisions somewhere along the way.
Clearly Sara and her husband have the highest wealth anyone can. Something they can sell and retain at the same time. Something that no one can ever take from them. They clearly have an education and you know what they say about an education… it’s a bargain at any price.
HAHAH,, I love how Nostradamus jr. is always DELETED, hahah, love it, he’s a racist bugger.
180K government couple.
My financial advisor has told me for years, thru thick & thin, the first he sees ‘chopped,’ in a downturn are those with well paying jobs.
#149Devil-Classic-”Sara and their likes write the cheque through their taxes to bail them out”. Fantastic-great plan-the guv workers will bail everyone out “with their taxes”. Priceless.
OT – A sis just brought this to my attention as she just bought a ticket to attend a bro’s wedding.
Group wants to sue Air Canada over full ticket price
By Montreal Gazette, Postmedia News July 16, 2010 MONTREAL — A Montreal group is trying to launch a class-action lawsuit against Air Canada for failing to comply with new consumer laws that went into force earlier this month.
The suit was deposited Friday in Quebec Superior Court.
It claims Air Canada has violated the new consumer protection law because the airline does not include all extra fees, like a fuel surcharge, in the price of a ticket when advertised online, which is against the new consumer law.
Lawyer Paul Unterberg said if the suit is successful, anyone who bought a ticket online would be eligible for a settlement. The suit asks Air Canada to pay the difference between the advertised price and the actual price to all people who have made purchases online from July 1 until the company’s pricing policy changes.
http://www.vancouversun.com/business/Group%2Bwants%2BCanada%2Bover%2Bfull%2Bticket%2Bprice/3288772/story.html#ixzz0uFyhCh5l
I wonder if this only applies to Quebec residents. I certainly haven’t heard of this new law though there’s been talk of it for years and agree that airlines should post the rate including all charges, with a breakdown.
Look at what has happened since the big melt down. I remember, 2007 sept, I was in london Uk and at time something happened there that didn’t occur since the 1860′s, a good ol’ fashioned bank run. People were clamoring to get their coinage out of Bank of Northern Rock, to the tune the gov had to step in and rescue them. That was the start of all the bailouts to ensue.
Anyway, also during the last 5 years, I remember the banks sending me letters of credit lines, basically begging me to sign on, I didn’t even need or want the credit they just sent it to me. My credit cards that I had, mysteriously they increased the credit limits again without me even asking, they just did it! Thankfully I never used any of this credit for anything. But if they did that to me, then what about all the other people out there that took this on? Are they sitting on all this credit shoved on them by the banks and now have to pay it back? Looks like it to me, based on all the warnings floating around.
I sold my house quite high and have been renting for a few years, knowing that the housing prices had to drop (I’m in the Okanagan, where prices are even more over-inflated). I have been watching the market, waiting for the right house, the right price, the right time… which seems to be coming.
What I’m wondering about is this “new” mentality of the banks. Is it possible that they are considering this new approach of being moral and informing Canadians of fiscal responsibility in order to justify increasing rates? Perhaps 10% is more easily justifiable if the banks are doing it for the “good of the people.” Would be curious to hear what people think….
Re: #147
“That leaves about 50k per year to cover every single other cost. (like food, gas, cell phone, entertainment, travel, gifts etc, etc). They will spend it all, and more.”
I don’t know about that. That’s like saying a family can’t live on $65000 gross (assuming a 25% tax rate) without any housing debt.
Sure what they are doing is stupid, they could be so much farther ahead if they played the game differently but they still *can* afford those house payments, even if they were to lock in for the next 10 years at 5.0%
Region: And what are your thoughts onthe best course for a Fed exit strategy?
Hall: That again gets at this confusion.Traditionally, reserves at the Fed pay zero interest in the United States, so in normal times with positive market interest rates, banks try to unload reserves; when they do so, they expand the economy. That does not happen when interest rates in the market are zero because there’s no incentive for banks to unload reserves. They can’t gain by getting something off their balance sheet if what they buy doesn’t yield any more. And during the crisis, there was no differential, nothing to be gained by unloading reserves.As the differential reestablishes,which the markets think is going to happenin the next year or so, then that issue comes up. It would be highly expansionary and ultimately inflationary if market interest rates began to rise above zero and the Fed didn’t do something to either reduce the volume of reserves or increase the demand for reserves.So the Fed has two tools, and Chairman Bernanke has been very clear on this point. He’s given a couple of excellent speeches that have described this fully, so it shouldn’t be an issue, and I think more or less it’s not anymore. The Fed can either leave the reserves outthere but make them attractive to banks by paying interest on them, or it can withdraw them by selling the corresponding assets they’re invested in. Selling assets will be timely because those investments will have recovered to their proper values; the Fed can sell them and use the funds to retire the reserves. So, again, there are two branches to the exit strategy: There’s paying interest on reserves, and there’s reducing reserves back to more normal levels.They’re both completely safe, so it’s a non issue. The Fed itself is just not a danger.It is run by people who know exactly what to do. And we have 100 percent confidence they will do it. It’s not something to worry about.
FINANCIAL FRICTIONS
Region: That’s reassuring, but I believe
you do worry about financial frictions…
Hall: I do, I do very much.
Region: Your recent paper on gaps, or “wedges,” between the cost of and returns to borrowing and lending in business credit markets and homeowner loan markets argues that such frictions are a major force in business cycles.
Would you elaborate on what youmean by that and tell us what the policy implications might be?
Hall: There’s a picture that would help tell the story. It’s completely compelling.This graph shows what’s happened during the crisis to the interest rates faced by private decision makers: households and businesses. There’s been no systematic decline in those interest rates, especially those that control home building, purchases of cars and other consumer durables, and business investment. So although government interest rates for claims like Treasury notes fell quite a bit during the crisis, the same is not true for private interest rates. Between those rates is some kind of friction, and what this means is that even though the Fed has driven the interest rate that it controls to zero, it hasn’t had that much effect on reducing borrowing costs to individuals and businesses. The result is it hasn’t transmitted
the stimulus to where stimulus is needed, namely, private spending.
8 (3 of 12)
http://www.minneapolisfed.org/pubs/region/10-06/hall.pdf
Interview with Robert Hall
#100 Boombust on 07.20.10 at 10:55 am
Checked my statement last week. We had taken out about $10K in cash – 2 withdrawals via the teller from our savings account and got dinged $10. Hubby called the bank. Apparently rules had changed. Said we should transfer it online to our chequing act and then withdraw it from there via a teller.
Frig. Anywho, our acct. will be credited $10. Have been w/TD (who took over Central Guaranty Trust, etc) for about 28 yrs. Have never been charged for chequing, etc. fees. They tried, but didn’t want to lose our business. They make enough from our money as it is.
In economics, a cartel is any organization of producers or sellers of a good who collude to raise prices by controlling supply, effectively acting as a monopoly. Understandably, most research on cartels has focused on their ability to raise prices, but there are also reasons to believe they affect productivity.
The Bitter Effect of Cartels
In a case study of the U.S. sugar industry, James Schmitz and co-authors demonstrate that cartels can lead to big reductions in productivity
Joe Mahon – Staff Writer
June 2010
#140 Devil’s Advocate
“What am I missing?”
The missing part. The part that explains why a couple already in their thirties making fantastic wages has only $25K in savings and a car payment. I think that houses over $500K in Canada just got a 10% haircut. That would mean their net worth is now $25K less the balance owed on the new car. Possibly zero. Is this their first year working? Where did all the money go? A lost decade?
#134 Another Albertan.
It’s pointless to try and place into nice and neat categories the number of commenters and their various opinions and what they all mean in the big scheme of things.
Having joined this “club” just a few months ago, I see an evolution of opinion. It is driven by a combination of what Garth writes and what the contributors experience.
And what has manifested itself, on this blog, over the last two and a half months or so, of my personal experience reading this stuff, is that Garth’s opinions on real estate and macroeconomics have generally come to pass, as I suspected they would, which is why I contribute in the first place!
Also, the opinions of others here have notably shifted from one of more skepticism to one of more confirmation that Garth’s views are primarily right because those have become the actual experiences of many contributors.
So, this is not so much group-think, or mob rule. It is the response to facts on the ground biting a whole bunch of people and upsetting many apple carts.
So many carts, so much time in which to tip them as the next months go by.
Getting out of debt remains key, and keeping a clear head, too. Mental navigation aids, like this one, helps in the process and brings about intelligent discourse.
Speaking of intelligent discourse, I’ll be very pleased to see Conrad Black freed on bail, then cleared of all convictions only to return to Canada as a full citizen. His value to our culture is beyond words. He is a genius, and a wordsmith par excellence. Good luck, Mr. Black.
#150
People do make that amount as analysts and policy advisors personally know people who are in late 20′s and make close to $100,000 working for the feds. The fact that they take home about 55% of that is another story.
And so it begins….
http://finance.yahoo.com/news/Apache-to-Acquire-BP-Assets-prnews-1515398272.html?x=0&.v=1
Once all the north american assets are liquidated to build up the contingency fund, BP will be in a bit of a pickle. Right now they are the largest natural gas trader in North America (and pretty big in oil too). They depend on thier creditworthiness in order to conduct that business. In the event that all the assests are sold and the proceeds all ring fenced in the Gulf clean up fund, there could be a major porblem. It could cause a market reaction similar to what happened when Enron went down.
#143 PLP on 07.20.10 at 1:44 pm
Stagflation is a wrong concept. It is deflation maskared with inflation, because prices rise with decreasing incomes, but increasing debt/credits. Remember debt is not money, it is an obligation in the future.
**************************
I agree about debt being an obligation of the future-but I think credit and debt should both be counted as money-because the direction of either-influences the money supply–
It also has a psychological/sentiment driven influence- on spending and direction of the economy-which then drives prices and GDP-in either direction-depending on contraction or expansion-of credit availability-
Expanding the credit supply is Inflation-
Credit in reverse (contracting) is deflation-
Why are we deleting Nostradamus Jr’s posts? I don’t agree with him, but that is no reason to delete him.
#29 Jake — “REALIGIOUSTATE”
Is Pasta Garth our new Messiah? Nice one, Jake!
#30 Onemorething — “Up in Shanghai last week…tick tock!”
Received an email from Mike Larsen today, saying a RE catastrophe is underway in the US; starts have plunged dramatically. Quoting:
“The U.S. Commerce Department just reported that all the gains made in home-building activity since last October have just been wiped out — construction of new homes and apartments just fell off the cliff:
“Between May and June, new housing starts plunged 5%. That’s an absolutely astounding annualized rate of decline of nearly 50%.
“At this rate, HALF of all home construction — and construction jobs — would vanish in a year. . . . for companies involved in building condos and apartments, things are even worse: Their activity plunged 19.3% IN A SINGLE MONTH.”
Therein lies the domino effect — one industry takes a major hit, then all the sub-trades follow on. The Great Global Reset (depression) Is On!
#128 Bill (Peterborough) — “. . . they have no concept of preparing a budget let alone following one.”
More’s the pity, as these are the ones who will be burnt alive. It’s the rest of us taxpayers who will have no choice but to live with ever-increasing taxes to support others’ gluttonous lifestyles. Good post.
David Crane’s column in the KDC yesterday was interesting — “West needs new growth strategy”.
Unfortunately, the only things growing in the west are debts and deficits. The cycles are changing (moving from west to east) and those who are not ready will be left at the starting line.
James Travers’ column today was also self explanatory — “Tory spending out of control.”
We elected them, we put a dictatorship in control of us, so can anything less be expected?
#140 Devil’s Advocate
Oh, there goes DA with his charming lovable old self again. How does a tanking economy redistribute anything from haves to have nots? And who are these people you seem to think believe this? If anything, the redistribution is the other way around, as the have nots expend their savings and sell off their assets to pay bills.
#143 PLP
Oh, but debt IS money. Maybe you could use to watch that video about what money is and where it comes from.
When debt is destroyed or paid off, the money supply decreases. Welcome to the future of a debt-based monetary system.
Would everyone be ripping on her if the story was 90k wages and 360k mortgage
——–
A lot bigger market for 360K houses than 800K houses if they ever need to sell.
#135 D from London, ON on 07.20.10 at 1:21 pm
“Teaching (like doctoring, lawyering etc.) does not lend itself easily to outsourcing as the work must be completed in place.”
_____________________________________________
Not necessarily. Jobs that must be completed in place are mostly trades and resource extraction.
I vaguely recall a NYT article about surgeries where the patient was physically located in the United States, and, the doctor was physically located in India and performing the surgery vis-a-vis webcams and robotics.
Also, if you think teaching can’t be outsourced, visit the khan academy on youtube.
This trend is in it’s infancy, but I can tell you that we the little people are going to find a way to “take out” the public sector unions, including the teachers.
Assie Roy
You missed the point
I am comparing any house that was purchased within the last 3 years, not someone who bought a house 40 years ago.
My point is define asset deflation?
So what your saying is I listed my house for a million and could not sell it until $400,000 that we would be in a housing crisis? Even though I paid $300,000 three years ago.
You do the math I figure I made $100,000 or 30%.
Oh your so smart about interest and carrying cost and selling fees.
No matter how you cut it I made $100,000 less any expenses over three years. Which for your information was $25,000. So I made $75,000
THAT IS NOT HOUSE DEFLATION
This is the problem with people like you they do not understand math and do not know what a housing crisis really is.
I made $75,000 period.
And thanks to Stampede Sam That is a real example of housing deflation. Not good.
#163 strev on 07.20.10 at 3:25 pm
Yeah our bak would up our credit limit too tho we paid off our bill each mo. We told them to stop.
A bro many yrs ago applied for a v. small mtg. He had a couple of credit cards but always paid off anything owing each mo. Bank said, but you have X amount of credit available to you & denied him. He’s always been an extremely frugal person. He also had a good credit rating and a decent job. Times sure have changed. He went elsewhere.
#117 Debt Is Invisible
I almost bought a new 3br apartment apartment for 25k US..
Sure ya did…. LOL Here’s what you get in Cebu-City starting at $29,500 USD
296 sq. ft… and probably in the basement….LOL….. But it’s still $100 sq/ft and for a condo, if you can call it that. Hope your not Claustrophobic. LOL
http://homes.point2.com/PH/Cebu/Cebu-City/Fuente-Osmena/1277248-Real-Estate.aspx
Hey “Disgusted in BC”
You want too see real corruption,waste and negative growth,then vote for the NDP next election
You will feel the pain 100 times worse
-
What Iran is really doing (wait until the German is translated into English — links in).
She really does have a magnificent grasp of the painfully obvious! The Other Half
Messing Up “JUST what we need: a war on a third front, making the US’s alleged “war on terror”… a world war!” wrh.com. As stated before, the US has nothing left for TROTW to buy. That’s why war was invented.
Speaking of war — Quick! We need more illegal immigrants to bolster our military!
Tar Sands “In the interests of accountability and transparency, I read through 300 pages of evidence and pulled out the sort of uncomfortable revelations that Ottawa doesn’t want U.S. oil customers, industry investors or Canadian taxpayers to know.”
54:37 clip Fried orange sauerkraut on weiner schnitzel with lime jello and baked beans, all mixed together!
What goes around comes around again to bite one’s ass.
North America is not the only one being hit with foreclosures.
We’re in our early thirties, new baby, new car, very fortunate and stable, with great jobs ($180k gross) in the federal government. We purchased our dream house last year in a great, walkable, downtown neighbourhood with excellent public schools for $800k with 10% down and a 35 year amortization
$180,000 a year for your standard non producers, if you notice nobody has a job that in terms of adam smith would be considered productive labour. not only have the debt levels gone up through the roof but there is no production to pay for it. only unproductive labour where we all take each others laundry out
Sadly for Sara and hubby the large federal pay and pension packages are coming to an end. The government is broke and will have to look hard at it’s own costs. The private sector will not tolerate supporting a bloated public service anymore that seems to continue to grow unabated.
Look at the Post Office, they are now starting to look at privatization. It’s coming and all departments will be affected.
Yes, deflation is an issue and I see it everyday. So you bought your house for $300k and sold it for $400k, even though you listed it much higher. That is a gain. But remeber someone paid $400k and I bet in 6 months it will be $350 k. That is deflation.
I think this guy appears to be delusional.
“The average home selling price in the GTA will continue to grow on an annual basis in the second half,” said Jason Mercer, TREB’s Senior Manager of Market Analysis. “Even with the pace of transactions slowing, there will be enough sales relative to listings to support sustainable rates of price growth.”
#164 BC Mom on 07.20.10 at 3:39 pm
What I’m wondering about is this “new” mentality of the banks. Is it possible that they are considering this new approach of being moral and informing Canadians of fiscal responsibility in order to justify increasing rates?
**************************
Bankers being Moral?
Nope-in fact-unheard of-
If they do “change “mentality” here’s what you’ll see-
They will hand over defaults to CMHC (you and me)
That way-they get paid in full for making the risky loan-
Then they will use that money to speculate-in markets-likely shorting everything-including themselves
(like GS did)
I personally think-the BOC is only raising rates up right now-so that when this thing really starts unwinding-they will have room to lower rates-so as they will be seen as “doing something”
I’m betting we see Fed rates lowered to 1/4% before they ever go higher-”if” ever–
Garth doesn’t but I do–
So when this happens–the Commercial Banks will be able to borrow at 1/4%–then buy the long Bonds that pay 3-4% (maybe higher) and live large off the spread differential–which will in turn keep demand up for our Government issuing Bonds/debt–
No Morals-nada
Forget politics and political parties they all swim in the same fish tank…the power corporation has their man in power and have (i have read) since 1965…”H” is the lackie right now….. and he is doing a fine job of disregarding the laws of parliament with a minority government….pretty much explains the obvious lack of confrontation by our opposition parties.
“Speaking of intelligent discourse, I’ll be very pleased to see Conrad Black freed on bail, then cleared of all convictions only to return to Canada as a full citizen. His value to our culture is beyond words. He is a genius, and a wordsmith par excellence. Good luck, Mr. Black.”
yeah, send him a big cheque with a bouquet :rolleyes:
#182 DaBull on 07.20.10 at 5:59 pm
#117 Debt Is Invisible
I almost bought a new 3br apartment apartment for 25k US..
Sure ya did…. LOL Here’s what you get in Cebu-City starting at $29,500 USD
296 sq. ft… and probably in the basement….LOL….. But it’s still $100 sq/ft and for a condo, if you can call it that. Hope your not Claustrophobic. LOL
http://homes.point2.com/PH/Cebu/Cebu-City/Fuente-Osmena/1277248-Real-Estate.aspx
………………………………………………………………………
Ever been on the ground there and looked around? Didn’t think so.
I agree with #174 – usually lurk – nothing really to add, however when does the Nost get released on parole. He’s been on probation an awful long time. i don’t particularly want to surf the doomspace like he does. FREE NOSTI NOW Garth
I see that you have attracted Calgary’s least desirable citizen as a spam poster, bob truman will hop from pc to pc posting endlessly for attention and throwing insults under more names than you can shake a stick at, brass balls, dabull, jason or whatever, rid yourself of his pestilence.
A few thoughts on:
- Morality:
Over the last couple of years, especially in the US, a lot has been said about morality. Interestingly, no one seems to define morality. I think most human beings believe in the 10 commandments in some way, shape or form but all rules beyond these are simply a product of the increasing complexity of society. What happens when a system becomes too complex and people do not believe in the integrity of the system anymore?
Morality is essentially conformity to the rules of right conduct. Maybe the old rules don’t make sense anymore. Maybe people have lost faith that these rules will make their life better. Maybe a new morality will emerge out of this ordeal.
- the banks’ new found religion
Bankers know darn well that consumer lending has peaked, that the lemon has been squeezed to the very last drop. Their new found morality is their survival instinct kicking in.
- the prime rate
Everybody looks like prime when real estate is going up. That’s why we got the Better than Prime mortgage. At one point those better than prime mortgages will start to show their subprime quality and spreads will start to reflect it.
In the US, the FDIC has been forcing banks to reduce their exposure to CRE. Guess whose loans they’re calling? Certainly not the delinquent ones. You certainly don’t want to be the ones with 75% paid off.
#193 Squidly
Is that the best you can do? When it comes to insults, bad predictions, and profanity, your sorry blog is #1. You think everyone who disagrees with you is Bob Truman. Why can you not stop talking about him? Obsessed? Man-crush? Or is it because he kicks your ass?
Enough, boys. I’ve hired a deserted street at dawn for you. — Garth
From what I understand, Nost is on probation. There is free speech and then there is personal responsibility. Nost’s posts needed reeling in and boundaries set. Garth will let him back on the blog when Nost knows the difference. Many of us take a great deal of liberties here and we’re not on probation.
#174 – John
“Why are we deleting Nostradamus Jr’s posts? I don’t agree with him, but that is no reason to delete him.”
I’m relatively new to this blog. “WE” did not delete
Nostradamus Jr’s posts…Garth did. He can delete me or you too….or anyone else for that matter.
Only Garth knows why. Nost seems pretty harmless
to me though.
Look at the Post Office, they are now starting to look at privatization. It’s coming and all departments will be affected.
————-
Just a few days ago, there was an article in the Globe saying that 82% of the post office workers will be retiring within the next decade and would be replaced by machines.
My spidy sense tells me attrition won’t be as large as what they are hoping for. I have trouble believing they will be able to make all these techno chages while most are preparing for retirement.
Have you ever tried to make changes in a department where people have 5 years left until retirement? The law of inertia takes on a whole new meaning.
Maybe Sara has a better future than many think. Time will tell. Although I wouldn’t have taken her mortgage.
But then again, maybe the Feds are planning on Thatcherizing everything and that’s why Carney just hired the GS guy as a consultant.
#169 brainsail on 07.20.10 at 3:56 pm
The missing part. The part that explains why a couple already in their thirties making fantastic wages has only $25K in savings and a car payment. I think that houses over $500K in Canada just got a 10% haircut. That would mean their net worth is now $25K less the balance owed on the new car. Possibly zero. Is this their first year working? Where did all the money go? A lost decade?
****
They put down $80k deposit. Plus closing costs that puts their pre-purchase net worth at approx $125 k.
Just because they are making $180k doesn’t mean they were making that 5 years ago.
Do the math.
I remember shortly after we were married and had just finished university in 1981 carrying student loans at 18% interest, looking at the price of housing we thought we would never be able to afford a home. That changed the next year when we built our first home on a half acre lot for a total price of $75,000.00. That was then a swack of cash that we didn’t have. But we had jobs and prices took a hit that gave us a window of opportunity. We financed almost all of it at 16.0% over 25 years. It was a tough row to hoe but we never regretted a moment of it then or now.
I remember after buying a couple revenue properties in 2002 and then looking for more only to realize the price had shot up 10%. I thought it was a short term glitch in the market which surely would correct back to the trendline so we waited. It never happened prices just kept going up
I remember selling our revenue properties in the summer of 2008 thinking all hell was about to break loose and it was get rid of them then or watch all that equity gain evaporate (that was before the financial meltdown of 2008). In retrospect I wish we’d never sold them, they never tanked nearly as much as I thought they were going to and never will to the point we’d have been in negative equity.
As we cruise the shoreline of Okanagan Lake and my wife says to me “Don’t you wish we had bought those waterfront properties when they were a fraction of their now price?” to which I reply “Had we, things wouldn’t be a whole lot different as we’d just be lamenting about having sold them too soon rather than not having bought them at all”.
Today we contemplate selling the family home as the kids embark upon lives of their own, but it’s “home” and hard to leave. All around us lots are being sliced and diced as we sit in a secluded little niche that boasts a privacy we find very difficult to replace. If we do sell we know we might come to regret it for a variety of reasons but probably none quite so much as the one we never saw coming.
We’re not wealthy by any means but we are far from destitute. We’ve learned to live on less so as to be prepared for those rainy days and our wants are less material these days. A car is just transportation, a house just shelter, neither so important and long lasting as friends and family. We’ve lived in splashy new homes and we’ve driven fancy new cars which, if anything, have driven friends and family away… or was it us as we, for a time, lost focus of what really mattered most?
I’d rather work because I want to not because I have to and I’ve earned the right to be able to do that now. I doubt I will ever retire as I enjoy doing what I do, the people I meet and being afforded the ability to practice my business the way I believe it should be done, not the way my would be creditors might demand it done were I indebted to them. So my biggest fear is not so much retiring destitute as it is being forced to retire due to failing health – something we can postpone but eventually catches up with us all. On your deathbed you are not likely to lament that you should have worked more. But you just might wish you had quit smoking or taken better care of yourself in some other way.
What’s my point?
My point is; you can’t time the markets. Land is a long term hold. Those I have seen prosper most are those who hold and never sell.
My point is; the market goes up and it comes down and then it goes up and it will eventually come down again. And then, eventually, it will rise once again and so on and so on… there will ALWAYS be a demand for land, be it to purchase or rent. It is not the improvements on the land that appreciate it is the land itself that appreciates. Oh sure it might fall for a time but it will rise again as it always has and always will for as long as there are people on this planet who need a place to live and do those things that we call “life”.
My point is; a home is a consumable. It is not an investment as one way or another you need a roof over your head for which there will always be a price that must be paid. Even if you hold a free and clear title there is an opportunity cost associated with it.
My point is; the best you can do is learn to live within your means… (below if at all possible, which is always possible). Save 10% of your income and 50% of your windfalls. Invest your savings as best you can without letting your expectations get the better of you turning your investments into gambles.
My point is give more than you take and, invariably in the end, you will always be well enough looked after.
My point is; enjoy life, enjoy what you do have, which if you are reading this is, at worst, likely ten fold more than 90% of the rest of the worlds population. Be thankful, you live in Disneyland.
My point is; your greatest asset is and will always be your body, your mind and your health. Look after yourself. Go for walks, runs, bike rides, meditate, read, learn, eat healthy food, STOP eating crap.
My point is; before you condemn someone else’s life choices take a good long look in the mirror and ask yourself if you are really one to criticize. You might be surprised to see who is staring back at you.
And above all, don’t do anything that wouldn’t make your Mom proud.
If you read the Millionaire Next door you will learn that there are UAWs (Under Accumulator of Wealth) and PAWs (Prodigious Accumulator of Wealth).
Sara might end up being OK but she’d fall into the UAW.
“Doctors, physicians, lawyers, and dentists are among the top professions with a high UAW concentration of individuals. The individuals in these professions are twice as likely to be a UAW than a PAW.[1] There are two reasons for these findings. First, because these professions require advanced degrees, individuals get a delayed start in the accumulation race. Most of the income during these educational pursuits is used to fund tuition, housing, and student loans rather than investment. The second reason is that American society has prescribed a lifestyle to these professions. Doctors are expected to live in an upscale neighborhood with multiple cars, a boat, and other luxury items. Their lives become a high consumption lifestyle to fulfill the “better than” theory”.
Better than theory:
“The “better than” theory is one of the main reasons many UAWs don’t hold true to their promise to invest after a rise in income. The theory is that the UAW’s “necessity” for that income will also rise in response to the risen income level. Most UAWs are possessed by possessions. According to a study conducted by Yale and stated in The Millionaire Next Door, individuals measure the level of their success through comparison to nearest neighbors and/or closest relatives.[1] Therefore, as the level of income rises, so will their desire to outperform those that they compare themselves to.”
Teaching can be a great gig if you can get tenure – in Greater Vancouver the young grads don’t get a foot in the door. Things were different in the early nineties – that’s when I started – I make 95K per year now; with my seniority I will have a job for life.
My nephew is completing a PhD in Physics – the odds of getting a tenure track is next to zero; there is not much other options.
Canada must start investing in its people and industry – I recently returned from a vacation in India: the country has its ills but there was a sense that it was growing, optimistic and future is theirs: it reminded me of growing up in the seventies: my Dad was an engineer, proud of his work, great professional ethos – our neighbour was the local bank manager – community respected him
#178 somecatchphrase
True. But the “jobs in place” thing is a continuum, not an absolute yes/no. Some jobs are very easy to outsource, like computer programming, some engineering, medical research, etc. Other jobs are much more difficult, but not impossible. Think of degrees of ease of outsourcing, rather than absolutes.
To support your argument, I note that some legal work is now being outsourced to India.
Garth, your political platform should have one basic principal before anything else…. “balanced budgets, not one penny over”.
Instead of, what’s wrong with your opposition.
Trust me I know, I’ve been around like 500 years, and I’ve seen it all.
Nostradamus jr.
But can you behave yourself? — Garth
Mr. Plow,
You are right. I see people in their 20s buying houses. Since they get married it means they MUST buy a house. This is their right! No intention to pay off the house – it is not possible anyway. It is just rented from the bank.
If cannot pay monthly mortgage payment because of a job loss, or divorce, then there is a good reason to go bankrupt. As long as the monthly payments are not more then 2x a rent, then living in an “own” home gives better quality of life. And yes, the debt is just a number without real meaning. If in trouble, will ask the government to bail us out – after all it is our right. And in this country the government will at least pretend doing this.
OK Kanata at post # 65.
Just a short three or four months ago you might have listed your home for $500,000 large and seen a bidding war that yielded a sales total of 520,000. But instead you waited because you do not believe that deflation is a reality or a risk in housing. Instead you eventually took an offer for 400,000 and signed on the dotted line, happy to know that what you received is more than what you originally paid for the place. It’s only a theoretical loss of 120,000 dollars to you but a “real” loss of that amount to an investor. But what do you care. You “only” paid 300k for the place in the beginning….so what. Right.
No big deal really. It’s just money.
But you don’t believe in deflation. Now do you?
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Kanata wrote:
If 3 years ago I bought a house for 300,000 amount, I listed it for $500,000 last month, did not sell, then repriced at 450,000, and took an offer for $400,000.
is that asset deflation?
I do not think so.
#200 Devil’s Advocate
DA, we GET your point, I think, very well. We’re just saying buying a house now, even if it’s just a place to live in, even if you can comfortably afford it, is insanity. Surely you can think of better things to do with your money.
Comment from Junius at #87
“My view is that government jobs will increasingly flat line and be eliminated due to the high government deficits. Trimming gov’t spending at all levels has already begun in Canada but is rampant in the US where many states and municipalities are bankrupt”.
You are 100% correct in that assessment of our economy Junius. And how bad can it get? Well, when US states are laying off police to cut costs while simultaneously releasing prisoners as a means to reduce the obligations of incarceration costs and then cutting positions at all service levels from nursing staff to firemen and garbage collectors…..you know they have problems.
But of course it can’t happen in Canada. We’re special here.
(And Ontario did not just suffer a massive multi-billion dollar deficit budget this year either. A deficit incidentally that was about the size as one released by the State of California. That can’t happen either. We are not in any trouble at all. And just to prove it we have higher interest rates that show just how much growth we are posting and that tell everyone we need to slow it down. We are not Americans after all).
Hey, where’s my transfer payment by the way.
Comment from Junius at #87
“My view is that government jobs will increasingly flat line and be eliminated due to the high government deficits. Trimming gov’t spending at all levels has already begun in Canada but is rampant in the US where many states and municipalities are bankrupt”.
You are 100% correct in that assessment of our economy Junius. And how bad can it get? Well, when US states are laying off police to cut costs while simultaneously releasing prisoners as a means to reduce the obligations of incarceration and then cutting positions at all service levels from nursing staff to firemen and garbage collectors…..you know they have problems.
But of course it can’t happen in Canada. We’re special here.
(And Ontario did not suffer a massive multi-billion dollar budget deficit this year either. A deficit incidentally that was about the size of one released by the State of California. That can’t happen either. We are not in any trouble at all).
Hey,..what do you mean there are no transfer payments anymore!!
#202Nancy-to compare 1970s Canada or 2010 Canada to India of all places is incredibly insulting to this great country.