Archive for the ‘debt’ Category

Why worry about home ownership rates?

Wednesday, August 19th, 2015

Some people have expressed concerns about Canadian home ownership rates hitting the highs that were last reached in the US before their market crashed, while others have said they’ll do what they can to increase home ownership rates in Canada.

So why would anyone worry about high ownership rates anyways?

ILoveCharts posted their take in the previous thread, and that comment is reproduced below:

Why do we need to worry about high home ownership rates?

1) Because when too many people own a home, it reduces the mobility of our workforce. Given the spotty/local nature of our economy, it’s important for our economy for people to be able to move within the country to follow the hot spots. When commodities are hot, people need to move to the west and our dollar is higher so manufacturing in the east suffers. When commodities are doing poorly the dollar drops and people need to move east to escape the barren mines, forests and oil fields of the west. Until we see major investment in diversification at the provincial level (likely will never happen,) this cycle will continue. With high home ownership rates, the teeter totter has tipped but people are nailed to the plank and they are stuck.

2) Because there is a practical maximum and a natural median. There will always be people who can’t practically buy (they are students, in poverty, etc.) When you go through a period of above-average buying, you expand the size of the housing industry (construction, realtors, etc.) in a way that is not sustainable in the long run. Once you hit the maximum, it only has one way to go to get back to the median. In the process, a lot of people lose their jobs. Seeing as 70% of people own homes, they start to run into problems with their mortgage. You can try to move the maximum point a little bit with new lending rules.. but you can only play that game for so long. Are we going to bring back the 40 year mortgage? Shocking to hear that we are going to allow $70k tax free out of the RRSP…

3) Because home ownership provides little to no value to society when it’s more expensive than renting. We want Canadians to be saving their money and investing in Canadian companies through Canadian stocks. We want those vast sums of money to deployed in our markets – creating and growing enterprises. Ownership of dirt doesn’t move our country forward.

The price of land is arbitrary. We have the second lowest population density in the world. It’s an incredible sign of weakness that we have allowed ourselves to get into a situation where we each pay so much for little pieces of it. We need to blame ourselves and our governments. We need to blame ourselves for feeling entitled to increases in the value of our property. Businesses with growing cashflows deserve to increase in value. Dirt does not – at least not at this rate. We need to blame the governments for being so willing to satisfy our demand for their short-term gain.

Now we’re hooped. The NDP wants to bring in massive social housing projects, the Conservatives want to use what is basically a nationalized bank (CMHC) to backstop ever-increasing mortgages for an ever increasing portion of the population and the Liberals just want to legalize weed.

I honestly can’t think of a way out of it.

Mayor: city is at a ‘breaking point’

Wednesday, July 29th, 2015

When it comes to housing affordability Mayor Robertson says that Vancouver is at a breaking point:

 “The conditions and the context keep getting tougher and tougher in Vancouver as the city gets more and more expensive and more desirable to people all over the world to invest in and move into. We’re basically at a breaking point where we need interventions in the market to ensure that people who live and work and grow up here in Vancouver have the opportunity to stay in the city and to keep being part of it and contributing.”

You may recall the Mayor wrote a letter to the BC Premier supporting the idea of speculation tax. The response from the Premier was based around the fact that such a tax would risk driving down house prices.

The Mayor responds to that idea in this interview at the Tyee:

“I think it’s completely wrong. It’s a totally different subject. What we’re talking about is taking some of the profit out of flipping and speculation, which doesn’t have to do necessarily with foreign ownership or homeownership or the value of homes. This is a business activity that’s taking place every day here in Vancouver where there’s a lot of profit, and it’s an option to transfer some of that profit so people can afford to live in the city. They went off on a completely different tangent in their response at the provincial level, and that’s unfortunate. The premier has said that affordable housing in Vancouver is a problem. Well, we need some action to deal with that.”

The problem with low debt levels

Tuesday, July 28th, 2015

We’ve seen lots of warnings about dangerously high consumer debt levels in Canada for years now, but here’s something new: Millennials lack of debt may be a sign of trouble.

Insolvency filings by consumers have started to edge higher after a long decline that began after the last recession. As has already been widely noted, the share of insolvencies accounted for by seniors is growing faster than any age group. What has not had much attention is the fact that the young-adult share is falling. Could this be a rare bit of good news for a cohort of the population that has been struggling financially?

Falling insolvencies among young adults definitely sounds good, but every silver lining must have a cloud right?  What’s the chicken-little take on this situation?

Hoyes Michalos recently produced an analysis called Joe Debtor that looked at people who make insolvency filings. The firm says 86 per cent of debtors ages 18 to 29 are working, but their average income is the lowest of all groups at $1,996 on a net basis per month. The average unsecured debt for the group is $32,229, also lowest of all age groups.

Personal loans are the biggest debt component at $11,841 for young adults making insolvency filings, followed by credit cards at $9,858. Almost 30 per cent have student debt, with the average amount owed averaging $3,716.

Their problems in today’s economy may have kept millennials from worse debt problems, Mr. Hoyes suggests. “If you haven’t been able to get a decent job, then it’s a lot more difficult to get into a huge pile of debt.”

In today’s debt-hungry world a lack of bankruptcies is indicative of a low income, how’s that for a bummer?

It’s a bad time to have Canadian dollars

Wednesday, July 15th, 2015

The Bank of Canada took another strike at driving down the Canadian dollar and cut the key interest rate by .25% to a slender .50%.

Canada’s central banker isn’t using the R-word – recession — but Stephen Poloz is cutting the Bank of Canada’s key interest rate by 25 basis points to 0.5 percent as he forecasts two back-to-back quarters of economic decline amid the crash in crude prices.

With Canadians carrying record-high debt loads and cheap money fuelling hot housing markets in Toronto and Vancouver, the 25 basis point rate cut will be seen as a risky play in some quarters, adding more fuel to the debt fire.

Read the full article over at BNN.

Party like it’s 1981

Wednesday, July 1st, 2015

Remember the 80’s?

Big hair, jelly bracelets and 20% interest rates.

Homebuyers back then had a tough time, they had to save up for a big down payment and the cost of holding a mortgage was high.  All that hard work and sacrifice was well rewarded though as Rob Carrick points out in the Globe and Mail:

The high interest rates of the early 1980s must have felt unbearable for all Canadians buying homes and arranging mortgages (it was heaven for savers, but never mind). The reward for perseverance was a 30-year run in which resale house prices on a national basis surged by an average annual 5 per cent and were up in 28 of 34 years.

This rally was fed by falling interest rates. After the visit to high-rate hell in the early 1980s, home owners benefited from a long decline in rates that continued into 2015. House prices haven’t gone up because homes are a great investment, because of immigration, because of foreign money or because home ownership is awesome. It’s because we’ve had a 30-year sale on the cost of financing a home purchase, with ever-increasing deep discounts.

That sale may be ending. There’s a growing sense that the U.S. economy is on the upswing, and interest rates in the bond market have already started to creep higher. Mortgage rates take their cue from rates in the bond market, so we could see lenders increase fixed-rate mortgage costs at some point this year or next.

For the historical perspective read the full article here.

The thing that may surprise you is that despite a housing market that has provided magical returns for older buyers and cheaper and cheaper debt seniors are still going bankrupt in record numbers.

Time for another recession?

Tuesday, June 30th, 2015

It seems like it was just a few years ago we had a recession, could it really be time for another already?

The Canadian economy has now contracted four months in a row and if that trend continues will Poloz have to cut rates again?

Economists have already written off the first half the year, but something better was still expected for April.

This also brings into question the outlook that had been painted by Bank of Canada Governor Stephen Poloz.

A recession is typically defined as two consecutive quarters of contraction, meaning May and June will have to be stronger to avert that in Canada.

Even if the May showing is flat, said Andrew Grantham of CIBC World Markets, there could still be a “modest negative” for the second quarter.

“It probably already feels like a recession for people in Alberta and Saskatchewan,” he said.

Read the full article here.

Who’s worried about debt?

Monday, June 15th, 2015

According to this article over at the CBC, Canadians love a good home equity line of credit – they’re practically addicted to that sweet sweet HELOC money at rock bottom rates.

“We are addicted for sure. Who wouldn’t be addicted to something so easy [to get]?” says 35-year-old Ali about the free-flowing lines of credit that have enabled him to splurge on the finer things in life.

“It’s easy, accessible cash at a very cheap price. The banks make it so easy for you to obtain it,” says the software engineer.

Some people say the national reliance on debt is a risk to our economy and to the lifestyles of the indebted.  But the Canadian Bankers Association isn’t worried and spenders say they are aware of the risks:

While Ali and Haji like to spend, they believe they’re behaving responsibly and say they’re aware of potential pitfalls. That’s why they’re still undecided about another loan.

“If you get a line on this [house] and God forbid something happens to me or [my wife] and we are unable to sustain our lifestyle or stream of income that we have, then we would be in trouble and that may lead to us losing this house,” says Ali.

And that’s why some rooms in the family’s home remain empty. Ali shows CBC News his large, mostly barren master bedroom and talks about his grand plans to furnish it — sometime in the future.

“Without the credit line, it’s slow,” he laments.

But things could always change. The couple says just last week the bank called, inquiring if the family was interested in another loan.

Read the full article here.

 

House-poor Canadians

Thursday, May 28th, 2015

Southseacompany pointed out this article.  Seems like the more valuable our real estate gets the more house-poor Canadians become.

“Campbell says that many, like Edgerton and Camus, are surviving now, but the big question is what happens if there’s an unplanned setback — from a job loss to a rise in interest rates.”

“”If the housing market goes down and those individuals have to sell, we’re going to see a lot of houses on the market, which will further reduce the house market in general,”

‘Canada has among the highest home ownership rates in the world; owning a home is one of the ultimate Canadian dreams. And it’s perhaps why so many people choose to live house poor rather than sell their home.”

Read the full article at the CBC.

Canadians deep in debt and getting deeper

Monday, May 11th, 2015

The Globe and Mail nicely sums up the current Canadian obsession with taking on household debt. This infographic has all the pretty charts related to the current situation in which current debt totals a record $1.8 trillion. Just over a trillion of that is Mortgage debt, with the other big growth seen in lines of credit and car loans.

One Trillion is a big number and it can be hard to visualize.  Here’s one way to put it into perspective:

If you spent $1-million every day, it would take you 2,740 years to spend $1-trillion.

Albertans carry the largest debt to income ratio followed by BC. It seems the nation loves debt, but the west loves it best.

Read the full article here.

Should you walk away from your Alberta mortgage?

Monday, May 4th, 2015

southseacompany pointed out this article in the Financial Post:

You can walk away from your mortgage (if you live in Alberta) but should you?

“Francis, a 34-year-old welder from the mining town of Grande Cache, Alberta, says he wishes he could get out of the townhouse he bought four years ago.”

“He bought the home for $175,000 with a five per cent downpayment but still owes $150,000 on his mortgage. He says the market for his home has collapsed in his town and a realtor just told him the best price he could expect is $75,000.”

“Since the loan is “under water,” his bank would be left with a shortfall that CMHC would have to cover. The Crown corporation would likely sue him for any losses it has to cover, so if he has any assets, CMHC will go after him.”

“Handing over the keys to the house and walking away from your mortgage, called “jingle mail,” was a defining act of the American housing crisis and helped send the market south of the border into a deeper tailspin.”

Interesting theory, but as we actually saw in the US states with recourse loans (i.e. Nevada, Florida) saw just as much of a collapse as non-recourse states.

VCI Network

  • Take a Peak.

    The Vancouver Peak Discussion Forums are now open for collecting stats, sharing data, etc. Please register at the new site and let us know what you think.
Leap to comment form