The lowest interest rates since ever have been with us for about four years now. Instead of using cheap money to retire debt, people have gorged on it. Like all those pitiful equity mutual fund investors who bailed out on the afternoon of March 9th, 2009, they have taken the mirror opposite of rational action. But this is way more consequential.
This week we were handed independent and believable evidence of what happens when a whole nation falls for house porn. When 70% of all families own real estate (76% in Toronto, 77% in Ontario), and have taken on epic debt to get it, how can we be that surprised at what the accountants found?
According to the Certified General Accountants Association, we’re so screwed. In less technical terms, it means household income that should be saved or invested is being sucked off as mortgage payments. A third of families now save nothing. A quarter of families have never set aside anything. The savings rate for all of us was 20% in the early 1980s, and is now 3.8%. A third of all Canadians have ‘no wealth’. Only 30% think it’s important to try and build wealth. And of those people who do have money saved, 80% say they’ll probably blow through part of it within three years.
So, not only have most of the people you know, including your idiot relatives and old boyfriends, squandered he cheapest rates of our lifetimes, but they’ve pretty much guaranteed a lousy future. Worse, they don’t think this is a big deal.
And here’s the hilarious part. This week’s new BMO survey (they sell mortgages, don’t they?) finds 45% of Canadians plan to buy a house within the next five years and 56% believe house prices will be higher by next spring. Fully half of people under 40 say they intend on purchasing a bigger house. At this pace we’ll have 100% home ownership and a 0% savings rate.
Says bank spokesperson Martin Nel, who did not giggle or throw up: “The relative strength of the Canadian housing market continues to bolster homeowners’ confidence.”
Now back to the accountants for a moment.
Most people aren’t even paying attention. The bean counters found over a quarter of folks don’t monitor ‘any of the key external factors’ that would affect their wealth. Like, oh, the economy. And we already know that two-thirds of all the money Canadians have in TFSAs is sitting in brain-dead savings accounts making less than 2%. We know from this pathetic blog there’s a widespread belief interest rates won’t rise again. Ever. And we know that 73% of the largest demographic group in the country (making up a third of the population) have no pensions.
Add this all up and it’s safe to say most people you know have no clear idea whatsoever of what comes next. They don’t have investments, nor worry about it. They do not understand equity markets, don’t trust anyone looking vaguely financial, measure success in stuff, think debt is totally fine and consider August extreme long-term planning.
These are the folks the banks go after. In past days I’ve shown you the deceit and misinformation of two of the largest. The Royal lied in print about the equity advantage of buying a condo. TD is misleading mortgage clients into thinking they can painlessly skip payments. This blog will have absolutely zero impact on their actions, because they know nobody normal reads it. Normal people are busy telling BMO they plan on buying a bigger house.
So all that information I gave you – on real estate sales levels from Halifax to Victoria, on the next wave of mortgage changes, on monetary policy and the generational shift out of real assets, on price/rent ratios, income growth and demographics – well, forget it. This train will run out of track all on its own. Few are listening, fewer acting. Each month that drifts by with sustained house lust even as the market weakens brings us closer to a hard landing.
An innumerate nation will find its level. The lowest common denominator wins again.