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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Drachen
Drachen
10 years ago

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%.

realpaul
realpaul
10 years ago

#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… Read more »

Anonymous
Anonymous
10 years ago

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.

Dave
10 years ago
Drachen
Drachen
10 years ago

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 😉 ).

Dave
10 years ago

@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)

cumunkiny
cumunkiny
10 years ago

Fly butt monkeys ReMAX man, I think we've hit a bottom. Oo-er.

Drachen
Drachen
10 years ago

"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… Read more »

Dave
10 years ago

@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.

Dave
10 years ago

@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

logic
logic
10 years ago

@Dave:

No, but we can shoot the "entirely uncritical purveyor of RE BS"

logic
logic
10 years ago

– Deadcat bounce is my favourite phrase

Dave
10 years ago

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.

Drachen
Drachen
10 years ago

@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… Read more »

Kill Dave
Kill Dave
10 years ago

Hey Davey,

Why are you wasting your time arguing with these bearish fools? Get out there and start making boatloads of money on real estate. Get your hands on every last penny out there and leverage yourself to the max. I hear there is an opening at Concert. Since you are a genius, you should get the job, no problem.

@oneangryslav2:

Davey picked 1985 for his reference point in comparison to today. The BOC indicates that average residential mortgage rates in 1985 were about 12%. from '85 to '90 inflation was between 4% and 5% (4% in '85). He has simply substituted high real interest rates in 1985 for high purchase prices (and near zero real interest rates) today. The comparison is bunk.

oneangryslav2
oneangryslav2
10 years ago

@Dave: Thanks for the response. Interesting. 25% down payment? Do you know what percentage of buyers in the last few years has been able to put down a 25% down payment? How would your assessment of affordability change if the down payment were decreased to what has now become standard, at least amongst FTBs–5%? Also, how quickly would affordability be undermined by a 2 or 3 percentage-point increase in mortgage rates? Finally, despite the massive recent (5-7 year) increase in real estate prices (while income has barely kept up with inflaction during the same period), the affordability index is currently only 5% points higher than the long-term average. What is wrong with this picture? Part of the answer is that if you were to exclude the last 5 years or so, the average since 1985 would be less than 31%,… Read more »

Dave
10 years ago

Drachen, your humour fails you, both in delivery and reception.

Let's compare predictions…

You… 50%+ drop… calling that for years… RESULT… NADA… Big fat zero

Me…

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.

2. Correction Magnitude – I called the SFH Vancouver bottom at $630k. It ended up hitting bottom at around $650k.

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.

Sorry, but those are the facts.

logic
logic
10 years ago

Dave Says:

October 28th, 2009 at 2:15 pm

Proven wrong? Quite the opposite… I have done quite well with my predictions,

==================

Monday: I predict that I will never die.

Wednesday: Ooo, look. I haven't died yet. I'm a frickin prediction genius! All hail me!

Drachen
Drachen
10 years ago

Dave Dave Dave, when things aren't going your way you just make a race for the gutter. Try to be civil.

As for your predictions, you are still 0 and 4 with one still hanging in the balance (well, truth be told you lost that one too but before your prediction was proven false you hedged). Yes… You're about as accurate as Nostradamus (which is to say, not at all).

Dave
10 years ago

@gorky:

Proven wrong? Quite the opposite… I have done quite well with my predictions, thank you. Feel free to read my posts from last Fall. So well that I might have to change my handle to Nostradaveus.

I am quoting REAL published data (as of Sep 2009). Who's the one in denial?

gorky
gorky
10 years ago

Dave you must be quite full of yourself…having been proven wrong so many times and the coming down with this one, that's just …well… wow.

"For example, the average apartment in Vancouver currently has an affordability rating of 36% (based on average household income, 25% down, 5 year rate and 25year amortization). This compares to an average of 31% since 1985."

In denial much? Get real man.

Dave
10 years ago

Do you wear high heels when you dance, just like in your dream clip? I'm not sure what Freud would say about this never mind your wife.

Dave
10 years ago

What's next, a clip from Ally McBeal or Sex and the City?

Drachen
Drachen
10 years ago

@Dave:

Yet another fact, logic and mathematical filled post from Dave, wizard of wall street, who has so much money because of his incredible intellect and knowledge of the market that he can spend all day, every day here.

Remember that video in a couple years from now, 'cause that's going to be me, rubbing it in your face.

Dave
10 years ago

@oneangryslav2:

By affordability, I mean the total percent of income required to service real estate debt (mortgage, taxes, upkeep).

For example, the average apartment in Vancouver currently has an affordability rating of 36% (based on average household income, 25% down, 5 year rate and 25year amortization). This compares to an average of 31% since 1985.