Canada’s looming pension problem
There have been numerous theories about how baby boomers affect the economy as they move through different life stages. As retirement looms for the boomers there’s more talk about how this demographic will impact the economy at large. It turns out that Canada has one of the least generous public pension plans of any developed nation. This is good for the long term ability of the government to afford the cost of pensions, but brings up another potential issue: many boomers will face a large decline in their spending power.
The proportion of seniors in Canada’s population will balloon to as much as a quarter of the population by 2030, from 14 per cent now. Middle-class Canadians without a workplace pension plan or personal savings to fall back on face a sharp and sudden decline in living standards when they leave the work force.
With millions more retirees living on subsistence-level public pensions, the economy will see a lot less of the discretionary income that has normally fuelled consumer spending.
Many people in Vancouver seem to view real estate as the all-in-one strategy for retirement saving, but that approach hasn’t worked out so well here in the past, or in other cities currently going through a multi-year real estate market decline. Are you concerned about being able to afford retirement and are you planning ahead, or are you counting on the Canadian Pension Plan to be enough?
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October 29th, 2009 at 1:05 pm
That sounds about right RealPaul, the average stake that a home owner who is insured by the CMHC has in their house is only 6%.
October 29th, 2009 at 11:11 am
#99 OAS, I have been reading interviews by various loans officers that the average downstroke is zero. The new line of credit makes up for the 5% and ‘presto’ a brand new FTB. I have also read that something like 85% of all buyers withing the recent time frame of free money giveaways is 1% away from being underwater in their mortgage.
Canada is desperate to keep the dollar down below the US and is pinning its hopes on a US recovery ( ain’t happening) so that it doesn’t have to raise rates. Aussie and Norway have broken with the pack of the super indebted and have begun to reign in the inflation in real estate and consumer discretionaries ( food etc) but Canada is letting it all slide. Of course this is killing the savers, but who gives a crap about a bunch of old people.
I expect to be paying much more for my bunch of bananas before this is over. The 2% keynsian inspired target that Carney has been blabbing about should double the cost of goods and servives over fifty years . My grocery bill has doubled in the past two. Same for real estate and many issues. Farcical to assume we are going to end this well.
October 28th, 2009 at 6:05 pm
Dave enough is enough.
Pretending to be the stupidest contrian alive is funny once but this has gone on too long.
At least when you pretend to be thumbsup or john it was funny
Now go to your room or go upstairs and have mum cook you dinner.
October 28th, 2009 at 6:05 pm
@Drachen:
Or in other words:
http://www.moonbattery.com/arc....._wound.jpg
October 28th, 2009 at 4:53 pm
Ahh well then you probably misspoke or didn’t give all those qualifiers a few times because I definitely remember you giving a flat 10% guess a time or two.
Nevertheless. Is Lake O’Hara at the bottom of the Rocky Mountains? What is a dip and what is an actual “bottom”, I don’t think bottom can be called except in retrospect and it needs a few years to make sure it’s truly settled (in slow moving Real Estate anyhow). Saying “ha ha, see I was right!” in that prediction NOW is grossly premature (I’d wonder about other parts of your life in which you’re premature but I’m trying to keep it civil, at least on my end
).
October 28th, 2009 at 4:48 pm
@Drachen:
Sorry, but that isn’t the case. I made the following post three days after I start contributing to this blog:
June 16th, 2008 at 5:21 pm
Freako, put me down for 12 to 18 months of gains. In other words, if there is a correction, then I predict values will drop from 10 to 15% (nominally). So, if it breaks 15%, I will have been wrong.
I will further add that a correction of greater than 10% will only occur due to an external factor (e.g. higher interest rates > 1.5%, higher unemployment ~ + 2%, or a recession)
October 28th, 2009 at 4:16 pm
Fly butt monkeys ReMAX man, I think we’ve hit a bottom. Oo-er.
October 28th, 2009 at 4:01 pm
“That would be like me saying you were wrong if prices were to correct 49.9%, even though it would be far closer to your original predictions than mine. Talk about splitting hairs.”
What are you talking about here? You were wrong period. End of discussion, that you use it as evidence of how good your predictions are just goes to show how deluded you are.
“10% off-peak was the non-recession scenario. In that same post, I said 15% with a recession. Guess what… correct again…”
That’s the hedge I was referring to, originally you just said 10% but then later you revisited your prediction once the recession became inevitable.
“A bottom is a bottom… we hit one. With your dress, lipstick and dancing fantasies, I would expect you to know that.”
Wow, you must have an interesting time at the amusement park. So Lake O’Hara is at the bottom of the Rocky Mountains by your definition? Get serious.
October 28th, 2009 at 3:50 pm
@Drachen:
That would be like me saying you were wrong if prices were to correct 49.9%, even though it would be far closer to your original predictions than mine. Talk about splitting hairs.
10% off-peak was the non-recession scenario. In that same post, I said 15% with a recession. Guess what… correct again…
A bottom is a bottom… we hit one. With your dress, lipstick and dancing fantasies, I would expect you to know that.
October 28th, 2009 at 3:41 pm
@oneangryslav2:
Good question. I think we need to differentiate between ‘been able to’ and ‘did’. With money being so cheap, some people likely keep their down payments low and money invested elsewhere. For the most part, first time buyers are not putting down more than say 10%. Trade up buyers probably exceed 25% for the most part. We should also keep in mind that a huge percentage of homes are owned outright.
Affordability will drop with higher interest rates (by definition). At the same time, higher interest rates imply a stronger economy which implies stronger wage growth. Even with this recession, average income is still climbing and at rates above inflation. I think the two are likely to be a wash going forward.
Have a look at the data. I think it will answer some of your questions.
http://www.rbc.com/economics/market/pdf/house.pdf
October 28th, 2009 at 3:38 pm
@Dave:
No, but we can shoot the “entirely uncritical purveyor of RE BS”
October 28th, 2009 at 3:37 pm
- Deadcat bounce is my favourite phrase
October 28th, 2009 at 3:34 pm
It’s not ‘my’ comparison. It’s data published by RBC. You don’t think a 25 year average is reasonable? That’s the length of an entire mortgage.
It’s strange that you would argue against a standard definition used for affordability. Don’t shoot the messenger.
October 28th, 2009 at 3:28 pm
@Dave:
You… 50%+ drop… calling that for years… RESULT… NADA… Big fat zero
I didn’t predict that it would fall that far until Fall 2011 at the earliest with it being more likely 2012 or 2013.
“1. Listings Peak – I was off by only a few hundred listings. The reality is that I called the peak of listings. That opinion was quite divergent from most, including yourself, who claimed that listings would continue to grow.”
Wrong is wrong, you called a number and you were off. If you’d been 2 listings on your side of the prediction you’d no doubt be crowing about how right you were.
“2. Correction Magnitude – I called the SFH Vancouver bottom at $630k. It ended up hitting bottom at around $650k.”
You also predicted “Not more than 10% off of peak.”
“3. Timing of Bottom – In December I said the bottom would be reached WITHIN 6 months. The market turned around 4 months from that prediction.”
And I predicted that there would be a drop, an upwards correction followed by another drop and possibly ANOTHER upwards correction before the real losses begin. You are not right about bottom until things have settled out for a year or two, every market in the states and most worldwide had the same bounce after the initial drop.