Financial advice for the condo trap

This on boggles the mind.

If you have an income that is dropping and you are in a negative equity position on a condo in one of the most overpriced cities in North America what should you do?

At least one financial planner says hold on tight!

She does have a way out. Lisa could sell the condo, pay off her loans, and walk away. She would be free to rent equivalent space and save perhaps $500 a month. She would be mobile, could easily take jobs in other cities and would be free of debt. However, she would have given up a good asset in valuable real estate. Moreover, unless she can get $350,000 or more for the condo, she would be in a deficit position after selling and moving costs.

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space889
Member
space889

First!!!!

Well it could be that she’s underwater and can’t write a cheque for the closing shortfall. Also, it’s the old Canadian preserverence….never give up, never surrender!

Though I don’t think I have seen a 40 year old condo appreciating at 2%+inflation yet.

Son of Ponzi
Guest
Son of Ponzi

# 1
Canadian preserverence,
Used to be the British “Stiff upper lip”.
Now it’s Asian “Face saving”.

Many Franks
Member
Equifax on Q3 consumer debt in Canada: Total consumer debt balances – excluding mortgages – rose 3.7 percent year-over-year in the third quarter, says the study. – Credit card debt levels seem stable, though still slightly above inflation – Automotive loans are still rocketing upward – 65-and-over are taking on debt the quickest On the same report, Statistics from credit monitoring firm Equifax Canada show that consumer debt, excluding mortgages, rose 3.7 per cent in the third quarter to $507.1 billion from $489 billion a year earlier. […] Meanwhile, overall consumer debt, including mortgages, continues to grow. In the third quarter, Canadians owed $1.36 trillion, up from $1.3 trillion a year earlier. Both articles quote experts repeating endlessly that we shouldn’t get our hair mussed about the big scary numbers because delinquencies are low. Which is like saying that the… Read more »
hmnhrmmm
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hmnhrmmm

I love how he’s estimated her monthly food costs at $ 120.00 / month.

Err…that’s $ 30.00 / week.

$ 4.25 / day.

Is that even possible?

I love the advice this planner is giving. What a surprise that the majority of Canadians are mired in debt…

Many Franks
Member

…and another point on debt. Now that we’re talking about TRILLIONS of dollars, numbers can be deceiving. For example, an increase YoY from $1.3 trillion to $1.36 trillion is a $0.06 trillion increase, or 4.6%. It represents an increased debt load of $1700 per capita in overall consumer debt (mortgages included). Last year’s debt was problematic, and now it’s $1700 worse. “But it’s OK because delinquencies are low” is a pretty sad conclusion to draw.

jesse
Member

OK, so are renters short wage growth and long bonds, or long wage growth and short bonds? Thanks in advance.

Naming Problem
Guest
Naming Problem

Jesse, I think you can remain flexible in your living decisions without necessarily being ‘short’ something. The whole idea of treating your living expenses as an investment rather than just keeping expenses reasonably in line with income has led many astray methinks.

victoria
Member
victoria
me
Guest
me

Good day my mate! I would like to say that this post rocks !, wonderful written obtainable with around almost all vital infos. I’d like to seem far more content like that .

Aggregator
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Aggregator

Both articles quote experts repeating endlessly that we shouldn’t get our hair mussed about the big scary numbers because delinquencies are low.

Ha ha. Delinquencies are low. Ya right. All they did was what they always do, and that is to create or sell another debt vehicle to consolidate old debt into new debt. Personal Loan Plans vs Credit Cards

Lenders and insurers are using all measures to prevent indebted homeowners from defaulting on their mortgages first. Debt consolidations, consumer proposals and some in some cases like Genworth's Homeowner Assistance Program, they even pay your mortgage interest free for a year!

Where you will see the effect of these measures is in lower retail sales, as more indebted homeowners commit to fixed monthly payments (and in many cases at a higher interest rate), spend less and become depressed.

Aggregator
Guest
Aggregator

Chart on #10 is in millions. Below are charts for BC debt. And that ain't no errors on data either.

Credit Cards

Personal Loan Plans

Lines of Credit

aa4
Guest
aa4
When I reviewed her budget, I loled at how delusional it was. $120 for food, $30 for clothing a month. And a bunch of things not even accounted for. And still she wasn’t making it. What I would do in her situation is simply don’t make another payment on the loan. It could be a year or even two years before she gets foreclosed on. The bank will do everything it can to avoid foreclosure, as until then it can still book the interest on the loan as income. In the meantime until foreclosure she is going to have to be honest with herself and her spending. BC is no longer a rich province, where average people have lots of money. It is more like a developing nation where most are fairly poor and a few very wealthy.. Aka normality… Read more »
crabman
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crabman

According to the article, this woman could save “perhaps $500/month” by renting instead of owning. Too bad the author didn’t do some homework.

The typical price-to-rent ratio for a downtown condo is 26, which would make the rent on a $335k condo about $1,100/month. This would make the woman’s monthly savings around $900/month, not $500.

gordholio
Member

“Canadian consumer debt jumps sharply to $1.36 trillion”

In other news, sales of Kraft Dinner and cat food reach record levels. “I’ll live on a diet of dirt and drive my kid’s tricycle to work if it means I don’t have to pay someone else’s mortgage,” said Joe Lemming of The Bestest Best Place on Earth.

4SlicesofCheese
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4SlicesofCheese

“Frugalness has given Lisa an opportunity to have what will be an unencumbered asset, her condo, after it is paid off by age 49 or 50.”

I like how success for her would be to penny pinch for 20 years and retire with a paid off 1 bedroom condo.

Also, I guess this means no vacations or kids.

4SlicesofCheese
Guest
4SlicesofCheese
RealityCheck
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RealityCheck

Patriotz:

Your contention yesterday that its the bottom entry level have run up this market is flawed.

I believe the top of the market has something to do with it as well. Who else is going to afford $2 Million plus homes in desirable areas?? Its not like the property ladder works that way. A person buying an entry level $500 K place does not wake up one day and says let’s move up to a $1.5M place.

Its foreign (corrupt?) Money and lax immigration condoned by the government that is driving this market. Put a moratorium on immigration and restrict foreign buying and you will see what happens.

Melba
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Melba

She was speaking in Toronto at an address to the Canadian Association of Accredited Mortgage Professionals, a leading mortgage industry association.

Also known as: the Canadian Association of Grade 1 Math Graduates.

space889
Member
space889

@RealityCheck – here is what is likely to happen, the buying will be done through an intermediatery who after the sales is complete and done, will then add the foreigner’s name onto the title and then withdrew their own name for a modest fee.

Alternatively, the purchaser will purchase with a loan provided by the foreigner, default and pass the house to the foreigner to pay off the loan.

Lastly, there is always the method of buying a house, put it into a corporate and sale the shares to foreigner and bypass the PPT as well…

Lots of loop holes.

space889
Member
space889

@hmnhrmmm – we average about $100/week for food for a family of 3 and that’s including 1 or 2 Costco runs a month. Certainly doable. But then we don’t eat expensive items like cheese, beef, packaged products, etc.

space889
Member
space889

@hmnhrmmm – that’s by choice btw as these just aren’t part of our regular diet. Not done on purpose to save $$$$. But even for beef, there are cheap places to get them as well, depending on what you like. We aren’t into steaks so that’s a big expense avoided.

Turkey
Guest
Turkey
@space889, @RealityCheck – here is what is likely to happen, the buying will be done through an intermediatery who after the sales is complete and done, will then add the foreigner’s name onto the title and then withdrew their own name for a modest fee. Or, the buyer could be surgically altered to look like Alex Trebek, or another well-known fair-skinned Canadian, whose status as a PRC sleeper would never be suspected. They would then be permitted to buy properties at inflated value with their dirty yellow money. Alternatively, the purchaser will purchase with a loan provided by the foreigner, default and pass the house to the foreigner to pay off the loan. Or the purchaser could place their suitcases full of cash into a high-temperature, high-pressure crucible and convert it into solid diamond (after all, polymer bills are largely… Read more »
space889
Member
space889

Well, another article praising virtual of condos / densification. It seems that Gen Y are now the driving force for Vancouver’s growth with their preference for self-contained work/play/live neighborhoods. Projecting the trend long term, we will basicaly have ghettos that’s defined by perhap income & job types rather than ethnicity?

Also interesting that all RE related stories are free at vancouversun.com and province.com, unlike other types of news.

http://www.vancouversun.com/business/commercial-real-estate/Vancouver+growth+shaped+tastes+generation/9210314/story.html

hmnhrmmm
Guest
hmnhrmmm

@space889

I call BS. I challenge you to show me how you could feed your family for 3 on the cheapest possible ingredients, and it’s nowhere near $ 120.00/month. I’ll even give you some leeway in your assumptions. I’ll assume you have a large garden, with no maintenance costs, that provides you with ample vegetables, fruit, and legumes to last you the entire year, and roaming cattle that provide you with dairy sufficient to satiate your family with enough milk to drink, and enough extra to press into your own cheese.

space889
Member
space889

@Turkey – I don’t know why you feel the need to give absurd responses to my responses. RealityCheck stated that banning foreign purchases would curb RE excess in Vancouver and I simply stated 3 easy ways to get around such curbs making it effectively useless. Just take a look at Aussie to see how well their foreign purchase curb worked.

But I guess any RE discussion where China is involved will always immediately degrade cause half of the posters here to degrade into mindless 6yr olds who thinks killing 1.2 billions people is all fine and dandy to avoid paying debts.

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