Category Archives: Budget

BC has the highest personal debt loads

We’re number 1!

The province of British Columbia has the highest level of personal debt anywhere in Canada and it’s still growing.

With incomes low and house prices high, it’s not an entirely unexpected result.  But even if you remove house debt we have very high levels.  Not including mortgage debt, simple consumer debt averages $37,879 in BC.

And that of course has led to a rising number of bankruptcies. In the last four years bankruptcy rates across Canada have gone up 11%, here in BC the number is up 42%.

That Province article also talks about the ‘elation’ of declaring bankruptcy, but that usually only occurs after some one has used up all their other options and burnt up money they could have kept:

“People often come to see a trustee as a last resort, when credit is turned off and they can no longer borrow from one card to pay another,” Mantin says. “They come in and say ‘I regret that I didn’t know about these options sooner. All I’ve done over the last two years is tread water.'”

Frantic people make decisions that will compromise their future, Mantin says. One of the worst is cashing in RRSPs.

For one thing, only the last 12 months of RRSP contributions need be surrendered in a bankruptcy. And those who sacrifice an RRSP without learning to live within a budget are not facing the underlying issue, Mantin says.

“Unless they’re forced to make a behavioural change, I often find they’re in the same position a year or two later,” he says. “They’ve dealt with the short-term debt but haven’t solved the budget problem so they run their debts up again.”

Read the full article here.

The pros and cons of a fixer-upper

Looking for a bargain?

Why not buy a disgusting heap of a house that no one else wants and turn it into your dream home?

The Financial Post has an article about the pros and cons of buying a fixer-upper.

It’s a first-time homebuyer’s dream: Snag a rundown house in a terrific neighborhood, and then revamp it to your heart’s content.

But fair warning, that fixer-upper could become your worst nightmare.

“You have to really know what you’re getting into,” says real estate expert Brendon DeSimone. “It could be the case where it seems like a good price and then you dig deeper and find that the windows are off, the electrical foundation is messy, and so on.”

Translation: You could wind up spending more than you bargained for.

Read the full article here.

Housing Affordability deteriorates to new low

Thank goodness we don’t have a housing bubble in Vancouver!

Otherwise one might start to worry about these latest numbers on housing affordability.

The housing affordability index takes local family income and then looks at what percent of it would would be required to service the debt on an average benchmark bungalow.

The entire province of BC is at 69.7% and blows away the rest of Canada for overpriced houses. Only Ontario starts to come close with an affordability index of 43.9%. Even Toronto can’t compete in the overvalued housing arena, coming in at 54.5%.

According to RBC Vancouver is the champion of overpriced houses. To buy the benchmark bungalow here it would take 91% of a local families pre-tax income to service the debt.

From Macleans magazine:

Nothing, of course, could persuade condo king Bob Rennie that the Vancouver housing market is in a bubble (or, worse yet, a bubble that’s starting to let the air out).

For everyone else, take a look at this chart RBC put out today with its latest survey of housing affordability in Canada (which is deteriorating in most provinces, by the way)

No problem, just arbitrarily knock 20% off those Vancouver numbers and we’re not much worse than Toronto.

If you look around the world, you may be able to find a few markets that have an even worse affordability index than Vancouver, with lower incomes or higher house prices. But for some reason, most of those places seem to be able to pull in higher rents than Vancouver.

First time buyer regrets

A new report from TD Canada Trust shows that many first time home buyers wish they had done things differently.

Despite being the single largest purchase of most peoples lives, research doesn’t seem to play a big role for most first time buyers.

More than half of those surveyed said they would have preferred to have a bigger down payment and bought sooner.

Many first-time homebuyers said they could have been better prepared and more thorough when budgeting, the poll found. Thirty-seven per cent of those surveyed did not budget for ongoing costs such as maintenance and utilities, while 17 per cent overlooked some of the one-time charges like inspection fees and five per cent didn’t budget for anything beyond the down payment and mortgage payment.

That article quotes a mortgage broker who advises that you make sure you’re able to make the monthly payment, don’t worry so much about the down payment or the timing of your purchase.

Some of the extra costs that some first time home buyers don’t seem to be budgeting for are inspection, appraisal, property transfer tax, legal fees, CMHC fees, Strata fees or mortgage rate increases.  Then of course there’s ongoing maintenance and insurance.

I suspect a ‘bigger down payment’ will always be on the wish list, but if the Vancouver market does the bubble pop dive you may see the ‘bought sooner’ wish drop right off there.

It’s budget time so here’s a new home tax credit

The new BC budget is all about austerity, cutting back and living within our means to bring down the debt. With that in mind anyone buying a new home gets a new $10,000 tax credit.

In his budget, Mr. Falcon pledges to sell off public assets, to raise medical service premiums and tobacco taxes, to cancel a promised small business tax cut. Mr. Falcon also is promising to hike the general corporate tax in two years, if the fiscal picture doesn’t brighten.

Mr. Falcon’s $44-billion budget on Tuesday offers several tax measures benefiting seniors and young families but the impact will be slight.

The province is introducing several new tax credits including a grant of up to $10,000 on newly-constructed homes for first-time homebuyers. Seniors will be able to claim up to $1,000 for eligible home renovations. And families will be able to collect up to $50 for each child for fitness and art programs.

Article in the Globe and Mail.