If the door’s open the next time you hop on a Westjet flight to Vancouver, take a look at the captain. What one should look like. Tall, silver hair, slightly athletic build, eagle blue eyes, distinguished as hell.
Trevor’s 57 now, has been flying for more than 35 years and is at the top of his game. He takes control of a thing that weighs 154,000 pounds and is 117 feet across like it’s a jaunt home to Mississauga in his Prius. Total control. Makes you want to genuflect a little.
But, sadly, I know the other side of Trev. That house thirty minutes from the airport cost $825,000, of which $515,000 sits in a mortgage. It looks like a place where an airline captain should live – a guy who daily is responsible for the lives of 149 people and $65 million worth of airplane. But, as Trevor has discovered, it’s also illiquid. On the market now for one entire year, and no offers.
This is too bad, since my advice to him was to bail as fast as he possibly can. For a guy with a $165,000 salary, he’s a walking (sorry, flying) disaster. The company pension plan is nothing to brag about, and won’t possibly cover the cost of a homemaking wife, two teenagers and a Mississauga McMansion when he hands in the wings in three years. RRSPs amount to less than $125,000 and are invested in a dog’s breakfast of do-nothing mutuals and dead-end GICs.
“I really should do something about this,” he told me in a duh moment.
Well, Trev is a Boomer. Like many of the nine million in his cohort, he’s now in his peak income-earning years. He’s also fairly screwed, despite being a workplace deity. He may have net worth of more than $400,000 and a mediocre pension but three-quarters of that wealth is illusionary, sitting in a 4,000-square-foot palace nobody wants to buy. At least at that price. The odds are pretty good he might end up taking a $200,000 haircut, which means half his net worth will crash and burn.
TD Canada Trust must know all about this. The bank dumped a new survey on us this week. It’ll scare the poop out of anyone thinking the real estate market is not on the precipice of a demographic chasm.
For example, people in their mid-forties to mid-sixties should, of course, be mortgage-free. They should have buckets of equity, a diversified investment portfolio, balanced asset allocation, a retirement plan and no more than 40% of their NW in real estate. Anything other than that spells fail.
But, says the bank, less than half of Boomers in Ontario have paid off their mortgage (that number rises to almost 60% in Alberta). A quarter of Boomers have retired less than 40% of their home debt.
Now think about that for a second. We’ve just come through a decade of the lowest mortgage rates in a generation. Loan costs today are close to historic lows. Boomers are in their golden years for earning dough. If there ever was an easy time to trash debt, it must be now. So what the hell have these people been doing?
It means millions of wrinkly old snorts facing imminent retirement have no choice but to cut and run. They cannot quit work with fat mortgage debt (remember that 70% of people are not like Trevor – they have no pensions), since it’s cash flow, not real estate, they require.
If you don’t think this means a tsunami of new listings in the next few years, well, the bankers have more news for ya. More than 85% of Boomers “say their next move will be to a smaller home.” And the most-often cited reason for moving (natch) is to “save money.” This is the spin TD put on it: “Many boomers find that their needs and priorities have changed since they moved into their current home. If you find you have more room than you need, consider ‘right-sizing.'”
Hey, it’s better than squirrel steaks.
So, shed a tear for this poor, lost and misguided generation. After living five or six decades in a non-stop inflationary environment where real estate doubled personal wealth every decade or so, where university tuition cost $500 a year, employers actually hired people with arts degrees and aging rock stars with enlarged prostates are still considered cool, it’s come to this. Big illiquid houses, debt that will only get more costly and plastic hips.
So here’s the deal. If you’re a young person lusting for a house, wait. There’ll be lots of geezer carrion soon. If you’re a Boomer like Trevor, cut your losses and bail now. It only gets worse as this decade marches on. There will be no rebound in the value of suburban castles.
Mostly, let this be a lesson to everybody. Houses are shelter. They are not retirement plans. They’re not financial strategies. They can turn into wealth traps. And soon you’ll look at a pilot living in a big pile of bricks the way we scoff a loser driving an Olds Delta 88. Or maybe a Hummer.
BTW, I’m starting a Boomer Relief Fund. Are you in?