In a world where people with fat mortgages and no savings get to live in mansions and drive hot cars you might think there’s no justice. Dirt cheap money and runaway hedonism make savers, budgeters and investors look like pickled nuns. When the borrowers are enjoying the stuff others only dream of acquiring, what’s the use of saving?
A week or so ago I asked that question after a writer for Maclean’s magazine decided to use this pathetic blog readership’s as a research project. After all, what better collection of whiners, malcontents, anarchists, incendiaries, enviers and conspiratorials could one possibly assemble? Reading yesterday’s comments, for example, was an experience akin to combining an Amway convention and a Hitler Youth rally. Made me ashamed to admit I wept when Mufasa croaked. As I posted your blog messages, I had to hum ‘Feelings’ for eleven hours straight.
Anyway, the guy finished his piece and it’s published. Here it is. You can read about one or two of the people who post here, and I’d like to thank all the others who asked to participate. Boy, do we ever have a lot of pissed-off readers!
Why is that?
Yes, housing’s a big part of it. Your idiot brother-in-law who borrowed 90% of the price of a house you’ll never afford (and he can’t) and now flaunts his imaginary capital gain. Those young couples with better homes than their parents ever had, and who got them with nothing down. All the zombies on HGTV shopping for second homes in Martinique or spending $400,000 decorating their seasonal cottages in Muskoka.
That would have Gandhi flipping birds.
But there are so many other pressures. Like living so damn long. Stats Canada this week says not only is everyone’s longevity swelling, but guys don’t even get to check out at a reasonable time. Now women live an average of only five years longer, and (worse) anyone who’s made it to 65 will probably last another 20 years.
This means you have to worry about money for far too long. A million-dollar retirement nest egg at $50,000 a year is gone in two decades, and yet we know only 1% of Canadians will actually have that much investible money. How can somebody actually get married at 30, buy a house, send kids to college at 50 and have seven figures saved at 65? Especially if they read a dumb blog full of people telling them to invest in guns and tinned tuna?
And then there are the markets, the damn Greeks and all this talk about deflation, recession and economic turmoil. It’s now all but impossible for the average person to worry about a family, a job and their finances in the same day – or at least to manage all three. The stress is overwhelming, especially when you call your sister in her $1.3 million house bought with 8% down.
So, why not blow everything, join the masses and live for today? In other words, why save?
The answer is simple. Because the world splayed out before you will not last. It simply cannot.
Intellectually, we know this. It’s impossible for real estate values to keep rising past the point of affordability, even though people borrow more and borrow debt. No asset class has ever done this, nor will. The correction will be sharp and painful for those who decided to play without any skin in the game.
The housing correction, arguably begun in key parts of the country, will obviously traumatize the people who bought with little or nothing down, and who will be thrust into negative equity. It will also pull property values in general lower, nailing those who sucked too much equity out – especially to buy a boat, a vacation or a cottage – as HELOCs.
Interest rates will not stay where they are forever, unless we go depressionary. But that won’t happen. And as mortgage rates normalize, borrowing costs soar and real estate values move in the opposite direction. Suddenly savers get the upper hand, while borrowers get the shaft.
The economic malaise will pass. America will recover. Countries deleverage. The Europeans will be less revolting. Global growth and corporate profits will stabilize financial markets, rewarding those who beavered away on their TFSAs, retirement plans and who made steady, regular investments. But in order to profit from the trip back up, you require two things – liquidity and conviction.
Days ago I told you one of the human traits holding so many people back right now is called recency. It’s the belief that what exists today will be replicated tomorrow. It could be nutty Vancouver house prices, or scary stock markets and doomers in Depends.
Get over it.
Failure is self-imposed. I have the blog comments to prove it.