Overpriced homes destroying retirement and education saving?

A few people pointed out this Rob Carrick column over at the Globe and Mail, looks like it should get front page attention here:

In February, Mr. Salvi called this client to remind her about the upcoming RRSP contribution deadline. “She said, ‘You know, I cannot put anything into my RRSP and, by the way, I need to cash it in.’”

Mr. Salvi recalls warning her about the withholding tax that applies to money withdrawn from an RRSP. Her reply was that her RRSP was her last resort. “The sad thing is that it took years to grow that RRSP, and it’s going to be used up in a few months.”

When somebody buys an overpriced house they’re giving up all the other things that money could have been used for.  It looks like those sacrifices include saving for retirement or their kids education.

Here’s the full article.

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Don Lapre
Member
Don Lapre

Saving for your retirement and children’s education is so passé, haven’t you heard about the new paradigm? There is zero incentive to save when you have perpetual leveraged gains in real estate to look forward to.

– How REALTORS® Help!

Clockbike
Member
Clockbike
AG Sage
Member

Huge mistake many made in the U.S. was emptying retirement accounts, which were protected in bankruptcy, in a vain attempt to get by. These people need to project their finances out a full two years and decide based on that. Stupid short term thinking.

patriotz
Member

The lack of domestic savings due to overpriced RE results in a lack of domestic capital for investment. Thus Canada is running a current account deficit at a time of high commodity prices, which is historically unprecedented.

And that’s what we should really be worrying about – foreigners buying up our resources, not RE which doesn’t produce anything. We should be welcoming foreigners to buy RE at inflated prices – which is a gift from them to us – and using the money to buy our own resources.

The problem is locals buying RE at inflated prices, not foreigners.

jumpin in
Guest
jumpin in

@rp1
@jumpin in: “3.8 billion in March and 9.2 billion yearly? There is something I do not understand. Please, help.”

The value of sales each year is heavily concentrated in the spring. A lot of homes usually sell in March/April/May. Take those out, and you don’t have much of a year.
————————
Does this mean that a 26% decrease in the spring is really substantial and meaningful?

jumpin in
Guest
jumpin in

@Don Lapre
And why SAVE when saving accounts are making you lose money?
All the incentives are here to spend on real estate.

Also, I know families with a decent/good income who do not save for education, nor retirement, do not own real estate, and can just make ends meet. Partly because life is expansive, partly because they cannot resist temptation (try skying for a few days with a family of 4). And those parents will be seniors when 25% of the Canadian population will be over 65. I heard on the CBC radio that the only solution for those seniors will be to live with their children… Those kids better get a good education to feed their parents.

Anonymous
Guest
Anonymous

You can’t tell from the article whether the house was overpriced. What you can tell is that they took on debt that they could afford to service.

Anonymous
Guest
Anonymous

@Anonymous:

Sorry, meant “couldn’t afford to service”.

patriotz
Member

@Anonymous:
Agree, houses in suburban Toronto weren’t that expensive to buy – given the current interest rates anyway – a few years back. You’re looking at a benchmark of around $400K from the UBC data. They’ve taken off since.

So choose one or more of:

1. They bought a house that was beyond their means although not overpriced at the time (i.e. they couldn’t afford to rent it either).

2. They have refied the house to take advantage of rising prices and consequently are paying more on the mortgage.

3. They simply have a spending problem (credit cards, etc).

registered
Member
registered
6 jumpin in Says: “And why SAVE when saving accounts are making you lose money?” That’s an extremely important point. By holding prime rates so low the BoC has so distorted traditional banking returns it’s eliminated the historical incentive to save. Your mattress has a better rate of return after service charges. So where do you put your money? Many will live out their days without ever again trusting the stock markets after the debacle of the 90’s bubble. The government effectively drove people to real estate as the only vehicle that showed a consistent and safe return on their investments. The vast majority of economists, especially mouthpieces for the government or the industry, still don’t see (or admit to) the danger in doing so. They say prices have more room to rise. If the ‘ivory tower’ set agree, what’s… Read more »
Anonymous
Guest
Anonymous

Holy crap – check out the CBC website guys – at present there are at least 3 articles that are negative on housing. One’s entitled ‘Be very afraid of the Canadian Housing Bubble’ another is entitled ‘Mortgage Market Tiptoes Towards Subprime’ and the third point out some facts that house prices in Canada are actually down from March from last year. Apologies for not linking, I’m a bit of a luddite.

rp1
Guest
rp1

#5 @jumpin in: “Does this mean that a 26% decrease in the spring is really substantial and meaningful?”

Only if it holds, which it may not. The weather really has been terrible. That could shift sales to later in the year. In a normal market that wouldn’t have too much of an effect on prices. A certain number of people want to buy or sell homes, and they simply wait for better weather.

But in bubble markets people don’t just want to buy or sell homes, they want to buy a rising asset or hold until the peak. Confidence is volatile, and anything that affects perception can drive prices. Hence the yellow helicopters and endless news reports.

patriotz
Member

@fixie guy:
The idea that the stock market hasn’t given a good return is more perception than reality. Of course there have been two major downturns since 2000, but downturns only lose money for people who bought at the top. Someone putting, say, $500 a month into the stock market for the last 10 years would have a very nice nest egg today.

registered
Member
registered

@13 patriotz: A significant portion of my money remained in the stock market and I’m not complaining. Don’t discount social factors though like less than stellar competence in the financial advise field. Saturday I had dinner with a friend – a small company owner so not entirely ignorant of finances – and he still talks about not recouping the losses. His adviser was probably heavy into mutuals and other packages pushed on smaller investors. Anyone who trusted investment advise from, for example, their bank is probably still walking funny. The distortion was top to bottom.

Anonymouse
Guest
Anonymouse

@jumpin in:

“And why SAVE when saving accounts are making you lose money?”

Because there are ways of saving without letting your money rot in a “high interest 0.1% savings account”.

Anonymouse
Guest
Anonymouse

@patriotz:

“Of course there have been two major downturns since 2000, but downturns only lose money for people who bought at the top.”

.. and sold at the bottom. Instead of selling they should have bought more.

HAM Solo
Guest
HAM Solo

Agree with Don, and AG Sage.

All contributions to RRSP made more than 1 year before filing for bankruptcy are protected. If you live in a house in Van with a mortgage of ~10x your income, the best strategy is to just keep rolling the mortgage with minimum payments and put any actual savings into RRSP. You will probably get wiped out on your house, but you will still be able to eat after declaring bankruptcy.

MM
Guest
MM

Is everyone else seeing this wonderful banner ad in the left bar? Maybe this style feels less threatening for someone in financial trouble? Yeah we’re all trying to save money, we won’t judge you.

MM
Guest
MM

@MM: oops image link didn’t make it through. If you didn’t see it, it was a link to a mortgage refinancing company, imagine a banner drawn by 5 year old.

What?
Guest
What?

April 16
New Listings 189
Price Changes 126
Sold Listings 250

TI:16767

http://www.laurenandpaul.ca

paulboenisch@gmail.com

Makaya
Member
Makaya

The Canadian Real Estate Market made it to GEAB, the european think tank I’ve referred to on this site a few times…

“The Canadian real estate insanity, a repetition of the US mistakes” (right column in the contents section)

http://www.leap2020.eu/English_r25.html

/dev/null
Member
/dev/null

Your kids don’t need an education: they can be Realtors(TM)! It’s the gravy train to easy riches.

Anonymouse
Guest
Anonymouse

@MM: “Is everyone else seeing this wonderful banner ad in the left bar? Maybe this style feels less threatening for someone in financial trouble? Yeah we’re all trying to save money, we won’t judge you.”

I don’t see the same ads as you, but I find it ironic that more often than not we’re shown advertisements for the very products and services that many here hate.

Vulture Fun
Guest
Vulture Fun

It’s not a great time to be a saver, but if you poke around, you can find a decent home for your money. I’ve mentioned before that Peoples Trust pays 2.1% on a regular savings account and 3% on a TFSA. That’s a yield that compares favourably with a dividend-paying stock, but in this case you’re CDIC insured and there’s no downside risk to the principal. Sure, real rates are negative, with inflation running somewhere around 10%? Who knows the actual figure, but you sure as hell won’t get it from the gubmint. Peoples is bare bones. They don’t even have an online banking option, but who cares? For me it’s all about the money.

Anonymouse
Guest
Anonymouse

@Vulture Fun:

“That’s a yield that compares favourably with a dividend-paying stock”

.. and is about half what you’d get for preferred shares, according to Garth.

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