You can tell it’s summer when half the letters I get are from teachers. So, here’s Laura. She and her squeeze are both you-know-whats. “We have a combined income of about $140,000, almost $30,000 in savings and zero debt,” she tells me.
Sadly this is typical of teachers, who believe they have pensions as enveloping as mama’s bosom, so they spend almost everything they earn. Big mistake. The Ontario Teachers’ Pension Plan, for example, already has a $9.2 billion shortfall. Despite record investment gains, it’s technically impossible for the plan to pay out all the benefits its members will be expecting. Solutions? “Increase contribution rates. Reduce inflation protection. Reduce benefits. Or a combination of these actions.”
Yikes, Laura. What’s the plan?
“We are really sick and tired of renting, but understand the housing market is seriously over priced, so my questions are: how much longer should we wait until we buy a house? Is it stupid to only put 10% down on a house or is it okay since we both have extremely secure professions?”
First, let’s chat about this ‘extremely secure profession’ thingy. Other than populist bloggers who combine rapier insight with eye candy physicality, no job’s safe. In BC, for example, they’re graduating almost three times more teachers than there are openings. In Ontario the unemployment rate among new teachers is a staggering 24%, and a recent survey found two-thirds of teachers’ college graduates end up dumpster diving behind the Royal York. Or, doing non-teacher stuff.
In fact, some teachers could find themselves on government hit lists, as has happened in the US. Public budgets at all levels are tapped out, and so are taxpayers. So if courts and elected politicians in California and Wisconsin can roll back pensions (and jobs) with the support of voters, could it not happen here?
Earlier this week I told you a little about the threat of deflation. It’s close. Assets values and commodity prices alike can plunge, even as the cost of living rises. That means your real estate bleeds equity, even while the supermarket bleeds you. It also means sagging oil and gas prices, as demand for our exports slump, making you happy you never did move in with Missy Bunny in C-town when she asked.
And look at the latest economic growth numbers, released Tuesday. Michael Jackson may have more of a pulse. GDP in May limped ahead by 0.1%, or just a third of April’s number. It means growth for the year might hit 1.6% – which is a full point less than the inflation rate and almost exactly equal to that of the US, which depressionistas on this blog keep saying is bankrupt.
In fact, even with its vaunted austerity measures (like getting rid of 19,000 civil servants) Ottawa is planning on increasing spending by 2.1% a year for the next five. How does that happen when the economy grows by less? Right. Tax more, or borrow more. Or download pain on the provinces and eventually the schools.
Like in Toronto, where the school board has this to say:
“TDSB continues to struggle with the significant budget challenges posed by this year’s $20M decline in provincial funding, aging infrastructure and a growing $3 billion backlog in renewal projects – things like replacing drafty windows, leaky roofs and antiquated boilers. These budget challenges are compounded by declining enrolment – 35,000 students over the past decade – and a provincial funding model based largely on student enrolment numbers. Looking ahead, TDSB is projecting a funding shortfall of more than $50 million for the 2012-13 school year if the Board is to maintain the current level of supports and programs students need.”
Like I said, so much for the security of the teaching profession.
So, Laura, is it dumb to buy a property with 90% financing at a time when real estate’s starting its decline, the economy’s torpid, new rules and regs are anti-house, your finances suck and doing so would leave you with zero reserves, no investments, no diversification and 100% of your net worth in one asset with a future even more unstable than yours?
No more, I suppose, than devoting a blog post to you. How pathetic is that?