Welcome!
VancouverPeak.com- jesse and Makaya are now friends
- jesse replied to the forum topic Sandbox. in the group Housing Data
- jesse posted an update: CMHC starts, completions and under construction in Vancouver […]
- The Ant started the forum topic BC Population Growth in the group Housing Data
- jesse and The Ant are now friends
- jesse and wreckonomics are now friends
- wreckonomics posted an update: New Year, New HPI. ”Selection Broadens and Demand Eases to […]
- Best place on meth and admin are now friends
- jesse and Best place on meth are now friends
- jesse replied to the forum topic February 2012 Daily Numbers in the group Housing Data
Wordpress theme by Abhishek Tripathi of Mediawick Digital Solutions
July 23rd, 2008 at 9:37 am
Anyone with half a brain could see this housing market crash coming for years, the penchant for debt both in the US and here in Vancouver just means the crash will take longer and go deeper than it would have in a normal correction.
Of course as risk gets priced back into the housing market that just makes borrowing more expensive:
http://www.nytimes.com/2008/07.....=permalink
What kind of idiot thinks house prices can keep going up forever without incomes rising?
July 23rd, 2008 at 9:17 am
“a significantly increased cost compared to renting and this decision contributes to a decrease in the savings rate”
yes, this is what I think, too.
“people are willing to spend more owning than it would cost to rent the same property and that is absolutely unsustainable.”
point taken.
July 23rd, 2008 at 9:12 am
ellery: “I thought it was clear I was referring to mortgages.”
I think the point was that someone has the choice of buying a property for a significantly increased cost compared to renting and this decision contributes to a decrease in the savings rate (though this decision cannot in itself put one’s PSR negative — this definitely goes for those who bought within the past year). I don’t think patriotz is disagreeing with you, only pointing out that people are willing to spend more owning than it would cost to rent the same property and that is absolutely unsustainable.
July 23rd, 2008 at 9:04 am
Jason
Please tell me you weren’t ‘educated’ here (I put the quotes because it seems you aren’t really very educated at all (and I put the note in brackets because otherwise you’d likely not pick up on the subtle dig)).
Do you know something? That has yet to be proven… Right now you’re doing more to affirm the view of the ignorant arrogant American than anything else. Maybe if you weren’t so angry and illiterate it would help.
July 23rd, 2008 at 9:00 am
Jason
Why are you so angry? If there’s really nothing wrong with your neck of the woods you’d think you’d just happily go on your merry way. Is your fourth grade education letting you down? Perhaps Krrish can put in a good word for you and you can get a warehouse job like him!
July 23rd, 2008 at 8:56 am
“Rental costs as a % of income are no higher now than they were in prior decades.”
I thought it was clear I was referring to mortgages.
“In summary yes the housing bubble has led to a decrease in savings, but it was entirely voluntary on the part of the dissavers.”
Yes, fine. That wasn’t my point. Maybe there is only room for one point on this board.
July 23rd, 2008 at 8:55 am
Jason
“here is a little objective reporting”
Wow, he’s fair and balanced!
“i HIGHLY doubt that the canadian standard of living will ever be as high as the american standard of living.”
Umm not according to any international ratings, Canada beats the US hands down. It has since there have been rankings…
I won’t even go into all the other crap. That’s about the most ignorant bit o’ crap I’ve seen in a while (I no longer look at Thumb’s posts). Call back when you’re literate and you actually have a basic understanding of what it is you’re trying to say. As it is you sound like a fourth grader (and not an especially smart fourth grader) waxing on about world politics. Just leave it to the adults and go back to your guns, your bible and your expanding waistline.
July 23rd, 2008 at 8:53 am
AHandle,
Your example of someone who saved all their money once and then retired with surplus funds is not equivalent to a negative savings rate across a population on average over time. Yes, one person can save money upfront and then have a negative savings rate in the future, as that is what retirees do, but if your entire population has a negative savings rate it means they are overall reducing their savings and potentially either selling assets in order to get by or going into debt. That was the point I was trying to make.
July 23rd, 2008 at 8:45 am
Jesse
“Income from investments is part of personal income.”
Yes, absolutely. The quote Anon had was referring to unrealized gains which are (correctly I believe) not included as income.
July 23rd, 2008 at 8:44 am
“But the increase in market price in housing makes no difference to those who have already bought and stay put, unless they take advantage of that increase to refinance and increase their spending. That’s negative saving”
Yes and for a -8% savings rate for the entire province it is not just people who moved to more expensive houses or were first-time buyers in the past 5 years (who are a relatively small fraction of total owners) who are tapping into savings and taking on debt to support current spending.
July 23rd, 2008 at 8:35 am
Citibank’s 2.19 trillion of assets doesn’t amount to much of anything if accompanied by 2.07 trillion of liabilities.
July 23rd, 2008 at 8:21 am
Guys,
Don’t feed trolls… ignore them and they will go away.
July 23rd, 2008 at 7:27 am
indymac a MAJOR bank?
hahahahaha…ooohhh, hahahahahaha!!!
with assets of 32 billion, that is NOTHING compared to the 1.5 TRILLION that citibank has even with its small 20 billion in losses. i never even heard on indymac until it got into trouble. largest bank failure in history? yeah, sure, if you look at the other top three at the 2 billion mark. peanuts.
tell, me oh great business guru’s of canada…where is YOUR google? microsoft and boeing? oh, wait…you make…ummm, nothing of world note.
how fast bc’ers forget about the bank of bc failure. what? forget already? forgot that hong kong bank took it over and scotia bank? does hsbc ring a bell? what happened to national trust? wow, hurts when someone actually knows something, doesnt it?
cant fool me boys, been around the block. keep that stupid ignorant opinionated narrow minded envious hate filled attitude that i happily left two decades ago.
July 23rd, 2008 at 6:32 am
re #79 – look again – she also smokes.
July 23rd, 2008 at 12:46 am
I think it’s apparent that high cost of living (ie housing costs) must be playing a role in our savings rate.
Rental costs as a % of income are no higher now than they were in prior decades.
On the other hand when renters purchase housing at inflated prices, it does decrease their savings rate, as I pointed out in post #64 above. The ownership rate has increased substantially during this decade so it is definitely a component of the reduced savings rate.
People trading up to bigger houses than they need, who I call the “live-in speculators”, also reduce their savings rate.
So do the cash-flow negative specuvestors, for obvious reasons.
But the increase in market price in housing makes no difference to those who have already bought and stay put, unless they take advantage of that increase to refinance and increase their spending. That’s negative saving.
In summary yes the housing bubble has led to a decrease in savings, but it was entirely voluntary on the part of the dissavers. No renter or specuvestor had to buy and no owner had to trade up or refinance.
July 23rd, 2008 at 12:00 am
correction:
____________
I think it’s apparent that high cost of living (ie housing costs) must be playing a role in our savings rate. The best indicator that a person will go bankrupt isn’t being a spendthrift, it is having a fixed cost of living (housing, car payments, student loan) you have indefinitely or for many years ahead.
____________
I meant a fixed cost of liviing which is not within your means.
July 22nd, 2008 at 11:58 pm
My(!) real savings rate:
(Net-Equity-Beginning-of-Year – Net-Equity-End-of-Year) / Gross-Income-per-Year
Note: Gross Income including realized investment income (e.g. rent)
July 22nd, 2008 at 11:48 pm
“Yeah, but BC is NOT unique in this respect. ”
No, of course. I didn’t mean it was. Sorry. I was just pointing out how someone could be putting away money and not fitting into the definition. I know people who fall into that category. By RRSP, I meant invested monies, not cash RRSPs.
I think it’s apparent that high cost of living (ie housing costs) must be playing a role in our savings rate. The best indicator that a person will go bankrupt isn’t being a spendthrift, it is having a fixed cost of living (housing, car payments, student loan) you have indefinitely or for many years ahead.
You can theoretically curb your consumption of TVs and lattes if you lose your job, but fixed payments are…fixed. Lose your job and you’re done…unless you can use the asset, which is causing the high fixed cost of living, to borrow against when you lose your job. Then you can keep up the consumption. Cripes. It seems to me Diane’s economic model is just the Greenspan model, actually.
It’s also a telling change in attitude that you should put all your savings in the stock market/housing or other asset which will theoretically go up. Cash savings has gained a bad reputation and leverage is considered “smart” and the way to finish rich. Have you noticed how many people talk about buy and hold? A crash is built in to the model, and people are bracing themselves not to weaken and give in when it happens, but to be “smart” and buy more when the market is done. It seems cynical.
In a way, I think Stats Can has a point. Can you count savings that can disappear or diminish significantly in a crash? Economic models aside – just common sense, I mean.
How much money is generated every year from selling money.
July 22nd, 2008 at 10:03 pm
Anonymus#79 – don’t forget her cigarettes as well!
July 22nd, 2008 at 9:25 pm
Year 1 – I invest 100,000 dollars – My ’savings rate’ is 100%
A savings rate of 100% means you save all your disposable income, i.e. your living costs are zero. How are you supposed to do that? Possible for a kid with a paper route but not anyone else.
July 22nd, 2008 at 8:54 pm
“There’s a meme in the local media that Canadians are more financially conservative than Americans”
Translated, this means: Americans are in it up to their ears, Canadians are in it up to their chest.
July 22nd, 2008 at 8:50 pm
Looking at her picture, Ms. Diane McLeod clearly spent all that money on Big Macs and Coke. At least she has something to show for it (like 50 extra pounds)…
July 22nd, 2008 at 7:31 pm
Vancouverguy,
An Example
Year 1 – I invest 100,000 dollars – My ‘savings rate’ is 100%
Year 10 – My investment has grown to 150,000 dollars. I withdraw 50,000 and buy something. My “savings rate” at this point will be 50%. Because I have earned income of 100,000 and spent of 50,000.
Year 30 – My investment has grown to 150,000 dollars again. I withdraw another 50,000 my “savings rate” is now’ 0%
Year 35 – I die and my children inherit 120,000 dollars from there spendthrift parent who never saved a dime.
July 22nd, 2008 at 7:02 pm
“Or they just do exactly what the bank suggests: make maximum contributions to your RRSP, investing in mutual funds.”
Yeah, but BC is NOT unique in this respect. It’s not like investing in mutual funds with high capital gains is some unique gift awarded to people west of the Rockies. Investing in RRSPs comes from savings, according to Statscan anyways, so would not affect PSR.
It could be that BCers pay down their mortgage faster than other regions of the country but according to Statscan the average debt load amongst homeowners has increased in the past 5 years, suggesting that overall debts are not being repaid at an accelerated rate; instead people are taking on more debt, likely partly by refinancing or moving to a more expensive property.
July 22nd, 2008 at 7:01 pm
“Once again Savings rate ignores investments and the capital gains acquired from investments. Do you understand now?”
I still don’t see what you are saying based on the definition Jesse posted. The only thing excluded is capital gains income. So if you have a negative savings rate but you are excluding capital gains income, and that is where people’s excess cashflow is coming (not from debt), then that is an entirely unsustainable situation. At some point, you have to save in order to have the capital to invest (unless you are just taking on debt to invest). If I started life with a negative savings rate, the only way that I could sustain that savings based on capital gains income is if I took on debt to fund both my current consumption and to fund investments, and then made a capital gain on my investments in the future to cover the cost of my debt. Similarly, it is unsustainable for an economy to have a negative personal savings rate because the same thing should occur. People’s capital gains are finite, and in the case of BC, will soon be nonexistent. More likely, and what statistics show, is that people are increasing their debt in order to fund their current expenditure.
July 22nd, 2008 at 6:32 pm
“Yes but that decline just happens to be accompanied by a long-term increase in personal debt. ”
People who are stretched thin by big monthly expenses, like mortgages, need to rely on little bits of debt to get by. If you convince people to take on the big debt, then they will need more debt. This is why selling debt should be better regulated. Everyone should have to study personal finance in school, and study sharecroppers in their history books.
Some credit companies have stopped using the word debt. They say “fast cash”. Mastercard’s “Priceless” campaign brilliantly targeted people’s natural aversion to debt. The normalizing of debt as a part of life is a serious problem. I wish it just affected dumb people, but unfortunately if I have to bid against dumb people with access to leverage for a house, or even investments, I often lose, too. Better interest rates on my savings would take the sting out a little.
July 22nd, 2008 at 6:19 pm
“Yes so BCers are either unbelievably shrewd equity investors or have lots of real estate that is being sold or re-financed.”
Or they just do exactly what the bank suggests: make maximum contributions to your RRSP, investing in mutual funds. There are some problems with that model (for example most mutual funds have commissions which hurt your long term savings). Equity investing? Yes, in most cases. Unbelievable shrewd? It doesn’t matter for the model. I do find it interesting that money market accounts and bonds are not included in the discussions among my peers.
Additionally, AHandle’s off the books savings model would include people who are diligently making the bi-monthly payments on their new mortgages. Again, there are problems with the model (like the people who don’t have leftover money for savings or extra student loan payments), and they may be financially vulnerable. But it’s not exactly the buying-fancy-cars-on-the-Visa-and-an-iphone-on-the-HELOC model which was suggested upthread. Although the 10% higher consumer-spending of BC residents, if it’s true, is notable.
I know of 1 serial refinancer. Guess what they refinanced to buy. Did you guess more real estate?
July 22nd, 2008 at 6:07 pm
Yes but that decline just happens to be accompanied by a long-term increase in personal debt. There’s your check on the statistics.
July 22nd, 2008 at 5:48 pm
http://www.bcstats.gov.bc.ca/p.....bi0207.PDF
A good read direct from the bcstats division. Pay attention to this bit:
“It has been argued that the long-term decline in
the savings rate is really just a statistical construct
because some types of income, which are becoming
increasingly important, are excluded from
this measure.”
July 22nd, 2008 at 5:48 pm
AHandle,
That’s very interesting What you are describing matches the savings (or “savings”) practices of most people I know, actually. My 2¢.
July 22nd, 2008 at 5:48 pm
“…Savings rate ignores investments and the capital gains acquired from investments.”
Yes so BCers are either unbelievably shrewd equity investors or have lots of real estate that is being sold or re-financed. What will a homeowners do when there is little to no home equity left to re-finance?
July 22nd, 2008 at 5:41 pm
I can start with nothing, spend more than I earn my entire life and retire wealthy? Now just how can I pull that off?
You can’t what you can do is have a negative “savings rate” for your entire life and end up wealthy by investing. The example I first gave had a -8% savings rate but would end up with a pretty healthy nest egg in the end.
Do you understand now?
Those are fine definitions and I agree with them but they are not how the government calculates savings rate so they are not relevant to this discussion. It really isn’t that hard to understand the metric doesn’t mean the same thing in common usage as it does in this usage. All sorts of fields have strange jargon that doesn’t mean what it does in the rest of society.
Once again Savings rate ignores investments and the capital gains acquired from investments. Do you understand now?
July 22nd, 2008 at 5:33 pm
“Note that ‘housing’ in the above refers to shelter, i.e. the consumption of housing.”
Correct, though this includes principal and interest. Also note capital gains are not included in the income calculation (link).
July 22nd, 2008 at 5:23 pm
Last I checked, NYC had not been annexed into the Canadian Dominion…..
_______
That’s too bad. Couldn’t we have all the blue states? America doesn’t want them anymore. I heard it on Fox.
I bet we could buy them really cheaply now. We could trade a couple of our Vancouver Specials for Manhattan. And I am sure we cold swap Coal Harbour for San Francisco. My model tells me this works. Especially with the strong Loon.
July 22nd, 2008 at 5:16 pm
“a couple of smaller banks have failed”
Did you miss that IndyMac went under? It’s one of the top 3 bank failures of all time. Not quite sure which definition of “small bank” that fits.
“$4B in Cititbank writeoffs”
Ok, seriously, where the hell have you been hiding? Citibank writeoffs over just the past 6 months are well over $20B – and it ain’t over yet.
“canadian jealous of american tirade”
Ok, clearly you’re just trolling, as the article is from the New York Times. Last I checked, NYC had not been annexed into the Canadian Dominion…..
July 22nd, 2008 at 5:13 pm
59patriotz Says:
July 22nd, 2008 at 4:50 pm
It is possible to be born poor have a -8% savings rate your entire life and retire wealthy.
I can start with nothing, spend more than I earn my entire life and retire wealthy? Now just how can I pull that off?
Try playing the lottery. Maybe you haven’t heard but gambling is the new black.
July 22nd, 2008 at 5:10 pm
“Personal consumption expenditure
Sum of expenditure on food and beverages, clothing, housing, furniture, medical care, transportation, communications, and recreation.”
Note that “housing” in the above refers to shelter, i.e. the consumption of housing. Buying a house is an investment, not consumption. But remember borrowing money is a negative investment. So if I borrow 500K and buy a house with it, that in itself is neither savings nor consumption.
But if I buy a house and the ownership costs are higher than renting, that results in a decrease in my savings rate going forward, because carrying costs (interest, taxes, etc) are consumption. Interest is consumption because it’s the cost of renting money. If you pay more to rent the money to buy a house (and other carrying costs) than to rent the same house, you have increased your consumption for no real benefit. You have made a gift to the seller of the house by paying more than it’s worth.
July 22nd, 2008 at 5:09 pm
Oh, Jason/US, I think maybe this is why you’re in trouble. You stopped making things, and switched to a FIRE economoy:
http://www.onpointradio.org/sh.....a_main.asp
Low dollar helps your exports, but threatens your infrastructure. There is a caller 3/4 way through the show who does a great job challenging the economists on the show who suggests the American economy is not in trouble. The caller *claims* to be an (American) trader, but you will probably tell from his Mountie accent that he is Canadian completely overcome with jealousy.
July 22nd, 2008 at 5:00 pm
Jason, I tried to read your post, but I was so envious, I couldn’t finish. I’m not ready for the truth.
Actually, I rarely hear people talk about America anymore, except on the bubble blogs. There’s not much left to say about the US these days, it’s so twentieth-century. Paris and Berlin, on the other hand…I am green then.
As for the personal savings – it is interesting if that metric is flawed because it’s out of date, isn’t it? Saving cash, slowly, is not in fashion anymore (you don’t want to miss out on the market!) and it’s not profitable with taxes and low interest rates. I guess this is what the war on savings means…
July 22nd, 2008 at 4:52 pm
I can start with nothing, spend more than I earn my entire life and retire wealthy? Now just how can I pull that off?
Invest in Vancouver Real Estate!!
July 22nd, 2008 at 4:51 pm
Last I checked the New York Times was a US paper, not Canadian, so I’m not sure what you’re complaining about. Of course the media blows situations up to make them seem worse than they are – you can bet they’ll do it here when more people go into foreclosure.
July 22nd, 2008 at 4:50 pm
It is possible to be born poor have a -8% savings rate your entire life and retire wealthy.
I can start with nothing, spend more than I earn my entire life and retire wealthy? Now just how can I pull that off?
July 22nd, 2008 at 4:34 pm
another typical one sided ill informed canadian jealous of americans tirade written as objective reporting.
well, here is a little objective reporting from a former native vancouverite now living in the united states.
yes, there have been bank failures recently here. yes, there are a lot of foreclosures here (record number) here. yes, banks, even large banks are reporting losses. etc etc etc.
ready for the TRUTH?
yes, a couple of smaller banks here have failed. poor business practices. larger mortgage firms have been hurt. yes, these firms lend money to the lower income bracket (next point will clarify it). foreclosures up. true, because people who shouldnt have qualified to buy a home were lent money with zero down and stupid low adjustable mortgage rate. if the people 9who shouldnt have been qualified to own a home) default, they walk away. no down payment loss to them…so they dont care about a foreclosure. it’s the banks problem (which it should be for loaning out the money). yep, fannie mae etc=poor business practice. record bank losses? somewhat true. citibank reported a loss of 4 billion or so…what the report fails to mention that in 2006 (didnt look up 2007) it made $25 billion or so in profit. in fact, it was the MOST profitable company in the world that year…beating out exxon and even stupid walmart (who has a profit margin of 3.5%).
so, the skinny of it is that the foreclosures are occuring in areas where there shouldnt have been homes in the first place and the people defaulting on their loans shouldnt have been owning a home in the first place.
has this hurt the american economy? somewhat. but not as bad as the news makes it out to be. nowhere near what the news makes it out to be. esp envious jealous canadian news. every time i call my sister, the first thing she asks is ‘oh my god, i hear the maerican economy is devastating. you must be suffering.’ etc etc etc. well, i tell her the truth. i say. no, in fact, the homes in my area have not decreased in value whatsoever. i do not know of anyone who lost their job…except those in the mortgage business (understandably) and no, i have been blessed with a continued stream of business.
the one thing i notice when i visit family and friends in canada is that canadians seem to obsess more over the happenings of our country than most americans do. why is that? why? because it is called distraction and scape goating. i HIGHLY doubt that the canadian standard of living will ever be as high as the american standard of living. even with the canadian dollr being slightly worth more than the us dollar…if you know economics, this is not a good thing. this discourages america to buy canadian goods. who else is going to buy canadian goods? canadians? all 30 (or so million of them). or would a canadian producer rather sell to the california market where there is 50 million people? dont be so proud of the current weak american economy. it will greatly…and i mean GREATLY impact the prosperity of the canadian economy. so alberta better crank up that sand oil production because there isnt a whole lot else that the united states would want. psst, we have lumber, minerals and fisheries just as much as canada…only the hippies (for now) say it isnt good to rip it open just yet. yes, you have your oil sands…but i am pretty sure we still have more offshore oil, oil shale, coal and nuclear warheads!
July 22nd, 2008 at 4:30 pm
Drachen, the statcan description is here
Personal income
Sum of income from labour, unincorporated business, interest and investments, and government transfers received by individuals and non-profit or fraternal organizations.
Personal disposable income
Personal income less income taxes and other mandatory deductions paid to government.
Personal consumption expenditure
Sum of expenditure on food and beverages, clothing, housing, furniture, medical care, transportation, communications, and recreation.
Personal saving
Personal income less consumption expenditure, taxes, and transfers to government, corporations and non-residents.
Personal savings rate
Personal savings as a percentage of personal disposable income.
Interesting that remittances result in a lower savings rate. Income from investments is part of personal income.
July 22nd, 2008 at 4:22 pm
Ok I did some more checking.
“If your savings rate is negative, it doesn’t necessarily mean that you don’t have any savings. It means you’re spending more than you earn, so you’re dipping into your savings or you’re borrowing to pay for purchases.” – Bankrate.com
“The Personal Saving Rate (PSR) is the fraction of personal income that is not consumed.” – NYU, Stern.
“Ratio of personal saving to disposable personal income. Disposable personal income is personal income less personal tax and nontax payments. Personal saving is disposable personal income less personal outlays.” – Answers.com
“Individual saving may be measured by estimating disposable income and subtracting current consumption expenditures.”
- Thefreedictionary.com
Do you understand now?
July 22nd, 2008 at 4:05 pm
Anonymous (get a handle by the way)
“The important quote:
“savings rate is incomplete because it excludes the value of investments in the stock market or capital gains””
You’re misreading it. What they’re saying is that unrealized gains are not included. If you buy a stock for $500 you have saved $500. If that stock’s value increases to $1,000 the government does not count that as a savings of $500. The latter is what they’re referring to.
July 22nd, 2008 at 4:05 pm
The metric is not flawed but the interpretation of the metric is. It measures what it measures, and what it measures is that people in BC, more than other parts of the country, are relying on sources of money beyond standard measures to supplement their spending. What could these sources be — investments, black market money, debt (collateralised with property or not), or what?
July 22nd, 2008 at 3:46 pm
Jesse not a bad point but I stand by my argument that the metric is so flawed as to be meaningless. If someone had a graph of net worth and net worth minus housing I’d be much easier to convince.
July 22nd, 2008 at 3:38 pm
Nobody’s disagreeing that savings rate does not give the whole picture but BC is unique to Canada in terms of a very negative value. Why this is the case compared to other parts of the country is up for debate.
July 22nd, 2008 at 3:32 pm
Basically the point I was trying to make is that the savings rate really doesn’t mean anything. It is possible to be born poor have a -8% savings rate your entire life and retire wealthy. You just can’t tell how someone is doing by looking at such a deeply flawed metric. The difficulty faced by the stats people is they have to calculate metrics in the same way over time for them to have any comparative value but people’s behavior may change quite a bit over such a long period of time. I’m sure when the savings rate formula was created only the wealthy bought stocks so including them wasn’t worth doing but now you are missing a big part of people’s savings.