The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: BigBangWeary on December 19, 2015, 10:28:07 PM
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Obviously the oil downturn is hitting Canada hard, but the BOC's talk of negative interest rates and its apparent strategy of doing everything it can to keep housing prices high is starting to really hurt. With the US normalizing, and Poloz hoping to restart a decimated manufacturing sector with a low-Loonie strategy (probably too late), I am starting to think we are looking at a 60 cent dollar again.
Other than oil, the problem seems to be structural and long-ish lasting. Canadians are seriously indebted on a personal level, which makes the BOC very hesitant to raise rates. What are Canadian Mustachians thinking here?
We import a lot more in Canada than we used to, so it is much harder to do the 'buy local' strategy. Most of the world is priced in US dollars and inflation is very likely to take off if Poloz continues to run counter to the US on interest rates.
Do you have a strategy going forward, or is it pretty much too late? Do you believe the dollar will rise again in the next 10 years? Personally, I think it will be low for long.
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Well, the overall problem is that our economy is in the toilet. The crappy loonie is just a reflection of that.
With the sliding exchange rate I am spending more thoughtfully. I think it's showing up most in the produce aisle, though a book I'm buying as a gift is 25% more expensive than I expected, so the price creep isn't just at the supermarket. Vacations based on USD expenses will be reduced or postponed if too pricey.
Currency gains on my U.S. and EAFE ETFs have (mostly) counterbalanced an awful year for Canadian assets (S&P TSX index, preferreds, REITs all way down.) Going to stay internationally diversified. (I can only imagine the tears shed and Rolaids consumed for people holding nothing but Canadian assets. Ouch.)
As for the crap economy, we can move for work if needed. Not tied to local RE and going to keep it that way for a while. Not going to take on any debt (and wouldn't even consider it unless tied to profitable income generation of some kind.)
Bad economic times aren't actually that bad for people who have steady jobs and/or money. There may be deals on goods and services that are normally too expensive to be good value. I invest continuously as cash flows in and I fully expect that some investments made during a slow economy (and pessimistic general sentiment) will end up appreciating handsomely in the future. (Maybe I'll ask DH if we can celebrate upcoming birthdays, anniversaries, Christmases by buying more ETFs... Hmm...)
I think it'll take another oil boom to raise the loonie up significantly, and that seems a ways off (though you never know...) I'm not doing anything too fancy in reaction or anticipation of the poor exchange rate, but I think they're prudent moves that will help us survive (and possibly better.)
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Not worried. No debts or mortgage anymore. Not big consumers. DW works for a huge U.S. based company which is reaping record profits, so no worries about job loss there. The Canadian dollar only serves to ensure her job security. We don't holiday in the U.S, but rather Mexico, whose dollar is equally as beat up as ours, so no real impact for us there.
The commodity boom-bust cycle is predictable. Canada WILL rise again. But yeah, a lot of Canadians are ill prepared for what is to come. I'd really hate to have a big mortgage right now. I think a housing correction is finally looking imminent.
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Exchange rates are a double edged sword. There's industries that will benefit from a weaker currency and others that will struggle.
Here in Australia over the last couple of years our dollar has dropped from around parity with the $USD to around $USD0.70. Some local businesses were really struggling to be competitive with the high dollar, so the exchange rate drop has benefited them.
I am kicking myself for not loading up on US market ETFs back then though :)
Sent from my LG-D855 using Tapatalk
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It's a bit of an unsettling time, isn't it? I'm a bit of a doomer around climate change/peak oil, etc, anyway, so my long term view is that things aren't really going to improve, although there may still be some short boom-y cycles.
We're far from FI, so it's kind of a weird time to navigate. We are granola-hippie-buy-local types, so we are seeing some of the benefits of that lifestyle lately. We produce a ton of our own food, barter for others, buy in bulk (year or two supply at a time) at wholesale prices for some staples, are open to hunting/crabbing, etc. We do still buy some food, and have definitely seen the sharp rice in prices. But we are grateful to feel very buffered from those increases thanks to our substantial pantry stores, and worry about others who are not so fortunate. Other goods we try to buy Canada-made anyway, which are less effected by currency swings, and also try to reduce our need for manufactured stuff generally. Of course, you're right, there's no way to do this completely, but doing so means that those few things that we need periodically (car parts come to mind!) that have dramatically risen in cost are still affordable within our budget. This is also when buying used is a winning strategy!
We're hoping our goal of selling our home in the spring and merging households with my mom will be exactly well-timed before any real-estate bubble-risk pops. If things work out, the plan will cut my commute and eliminate our mortgage, allowing DH to do more flexible work and decrease hours significantly.
We really haven't pursued FI in the usual stash-building way that most on here are, but have been focused on building resilience. The plan is to enjoy a simple life, have me work at my enjoyable, flexible job for many years to come, reaping a secure pension (fingers crossed), and saving as we can, while building a significant community network of mutual interdependence and support. We hope this will allow us to thrive no matter what is going on in the wider economy. At the moment, we're seeing that strategy really pay off.
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Focused on building resilience. The plan is to enjoy a simple life, have me work at my enjoyable, flexible job for many years to come, reaping a secure pension (fingers crossed), and saving as we can, while building a significant community network of mutual interdependence and support. We hope this will allow us to thrive no matter what is going on in the wider economy. At the moment, we're seeing that strategy really pay off.
This right here should be just a way of life, if more people were sensible, positive and mindful oh how grand society would be.
Such wise words !
The Canadian economy is so complex to me right now as I have the benefit of seeing three distinct markets (although an eastern Canada perspective would help in there) I live on VanIsle, work sales out of Calgary and have businesses/work in SE Saskatchewan.
I see the island right now as optimistic and doing very well (we even opened a store here). More businesses keep opening and friends that own businesses have said summer of 2015 was some of the busiest they have seen. The island is also a tourist destination and I think summer of 2016 will see world traveler flocking here, so we will see another crazy summer. (often the locals go into hiding lol) I also think we are extremely fortunate on the island with all the farmers markets that provide us amazing food that is somewhat sheltered from larger influences. Also to the topic of food, we really need to start eating seasonal foods.
Calgary has enough long term capital projects to hopefully see it through another year or two keeping a few big construction firms rolling and work that way. Oil corporate offices are hurting and layoffs are monthly but maybe that frees up talented individuals for other industries. Also once a city gets to the size of Calgary doesn't it in a way create a bit of it's own economy just supporting itself.
SE Saskatchewan , primarily where we moved from is a ghost town of sorts with the drop in oil. Very quiet and very scary, we have a retail business there and sales are down about 40%. The only ones who did really good this last 6 months were the farmers apparently.
The biggest thing I look at with Canada, the only thing that ties us together is our dollar. Our country is so large and distances between micro economies so great that they seem to act independently of each other. I don't feel we are in a housing bubble, just regional corrections based on supply and demand.
Big cars Big houses is a societal thing and those same people will get themselves in trouble anywhere in the world..of course rising interest rates on mortgages will kick many people's ass.
The low dollar does help stop the bleeding on low oil at least a little for the producers being that they sell oil based on US WTI.
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I'm not Canadian, but I plan to travel to Canada on vacations more often to take advantage of the low loonie.
Hopefully there are more US-based people like me that will travel to Canada and help your economy out.
I also plan to buy some salmon while there to bring with me back home. Any good suggestions for buying frozen local salmon that I can take on the plane with me back home? I love pacific salmon and plan to load up on my trip. I am also going to gift salmon for Christmas to my family. Well, they will get a promise for salmon to be given to them a month later. ;-)
I do have a lot of international investments that have been hammered due to the strong US dollar vs. every-other-country, so I am also suffering a bit from it. I'm making it up by travelling cheaper instead.
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Uh, if you ever happen to come out this way in the Summer...we could go out and catch our own.
Much cheaper. :)
I think what would prove to be a huge psychological blow to the country would be if, like the U.S., a significant segment of the population became underwater on their mortgages.
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We're avoiding going to the US and instead staying in Canada for any vacations. And buying lots of cnd index funds (to my targeted allocations, of course!).
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I think what would prove to be a huge psychological blow to the country would be if, like the U.S., a significant segment of the population became underwater on their mortgages.
I was thinking this exact thought as I drove through a new Winnipeg suburb yesterday…hundreds and hundreds of houses built in the last couple years, nothing under 500k (most significantly higher). Seriously doubt people actually make enough money to afford them. Maybe put 5% down…one small correction, and they're significantly underwater.
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Uh, if you ever happen to come out this way in the Summer...we could go out and catch our own.
Much cheaper. :)
I think what would prove to be a huge psychological blow to the country would be if, like the U.S., a significant segment of the population became underwater on their mortgages.
That might be an option. Thanks for the offer.
But I need me some salmon when I go in the winter. I'll eat it all before summer comes around.
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We (and other people around here) used to go shopping in Calgary when I was younger. My parents even took us to do our school shopping there once.
Not sure how much that helps, but I can see it happening again if the loonie stays weak. It used to be kind of a given that you get more for your (american) dollars in Canada.
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Just a few additional things I've noted here in Ontario. Gas prices are stubbornly high. We did drop to about 86 cents a litre when the local Costco opened a gas station. Other communities are still higher.
Local car dealers are literally running radio ads offering top dollar for trades to send to the US. I know a few people in the industry, and a lot of money is being made sending SUVs and pickups across the border.
I think manufacturing may actually be picking up. Maybe..
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We're avoiding going to the US and instead staying in Canada for any vacations. And buying lots of cnd index funds (to my targeted allocations, of course!).
Sure its expensive if you act like a normal person but we are smarter than that, we follow MMM :) I just did 16 days on the road in the US for under $600 and that included ferry tickets off Vancouver Island , US National Park pass and fuel to go 6700km. Dirtbaggin' is cheap and easy way to see 9 NP and 8 States :) The ridiculously cheap fuel with our crap dollar puts us basically at par so no different than a CND road trip.
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We (and other people around here) used to go shopping in Calgary when I was younger. My parents even took us to do our school shopping there once.
Not sure how much that helps, but I can see it happening again if the loonie stays weak. It used to be kind of a given that you get more for your (american) dollars in Canada.
And at the same time I remember everyone that would go on shopping trips to Great Falls
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Not me, it doesn't seem to affect me. The only thing we've done differently was choose a Canadian rather than American city for our last mini-vacation, but it was a place we've wanted to go for a long time anyway (Montreal). We honestly buy so little consumer goods that small price changes don't really affect us. Lately it does seem like there's more local/Canadian produce at my usual grocery store, but it could be my imagination.
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I agree with the poster who suggested diversifying now, before the loonie drops further. In our case, as expats earning local currency, the exchange rate works in our favour. It means that we can buy more Canadian dollars with our salary. So now is a great time to invest in Canada. To me, it's like the Canadian dollar is on sale! Gotta stock up!
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Canadians bought a lot of foreclosures in Phoenix in 2009-2012. Between appreciation and the exchange rate, a lot of those properties are now being sold for some very nice profits.
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the outlook for Canada in general for the next while is pretty terrible, I think. we can't be both a country that largely exports its commodities for processing in other countries and a first world country, as a permanent thing. sooner or later that arrangement had to fail. If we invested major dollars in refineries, mills, etc. so we could export value-added products that would be huge, but I don't see it happening.
Obviously our economy is more complicated than that, but the lot of it is less than it could/ should be, because of shortsighted planning.
For the nation and the people in it, an extended period of terrible economic times is terrible, obviously.
For me personally, it's making a summer trip to NYC look like a bad idea, and it's influencing me to move my investment to non-Canadian vehicles. Garth Turner says light on maple.
On the bright side, I have a secure job, and if there's a sudden drop in real estate prices I intend to take advantage of that.
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... The crappy loonie is just a reflection of that. ...
... our crap dollar ...
... To me, it's like the Canadian dollar is on sale! Gotta stock up!
As a new investor, hope this question doesn't come off naive: since the CAD dollar is so cheap, and as someone mentioned that "it's like the Canadian dollar is on sale!", does it make sense to change our target allocation (say from 25% CAD to 50%) so to accumulate more CAD stocks / ETFs / funds? Any insight would be appreciated!
This is the same error that another forum member recently made in the context of purchasing silver (http://forum.mrmoneymustache.com/ask-a-mustachian/where-to-buy-silver-to-average-down). The fact that CAD/USD is currently lower than it was in the recent past does not mean that the current price is "crap"; it does not mean that CAD/USD is "on sale"; and it does not mean that now is a good time to bet on CAD/USD increasing. Those decisions have to be based on the fundamentals of the proposed investment, not on whether it is currently priced lower than it was in the recent past.
Note: I express no view on the fundamentals of CAD/USD or any other currency pair.
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Sure its expensive if you act like a normal person but we are smarter than that, we follow MMM :) I just did 16 days on the road in the US for under $600 and that included ferry tickets off Vancouver Island , US National Park pass and fuel to go 6700km. Dirtbaggin' is cheap and easy way to see 9 NP and 8 States :) The ridiculously cheap fuel with our crap dollar puts us basically at par so no different than a CND road trip.
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What is dirtbagging????? Extreme camping?
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Our strategy is pretty much the same as it's always been. Spend less than we make, invest and keep paying off the house. Since our mortgage rate is fixed and it's due to be paid of before the current term expires, we're not in any danger of losing the house. DH works for the feds, and since I work for a US owned firm who sells it's product mainly in US dollars, my salary just got cheaper for them to pay.
We also co-own a piece of property in Vancouver. We hope to sell it later this year and I'm sure the low Canadian dollar won't hurt Chinese demand for property there. Frankly, the low dollar only makes me less nervous about a RE decline in the city.
We won't be doing any US travel or shopping for quite a while.
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What is dirtbagging????? Extreme camping?
I guess to the regular crowds it would be more of the "VanLife" or car dwellers.
Its more of a term that is used by the hiking and climbing community, you could say the same for surfers or skiers/snowboarders. Went to that epic location with only their clothes on their back and their vehicle with no real money just so they could climb, surf or ski to feed their passion.
This is Alex Honnold, the greatest free climber currently on earth....his van is pretty pimp though.
https://youtu.be/CArfaGmYuGM (https://youtu.be/CArfaGmYuGM)
Maybe a better example more extreme example
https://youtu.be/cseSMl1f770 (https://youtu.be/cseSMl1f770)
What is a Dirtbag
https://youtu.be/ESuMIYyC19I
Regardless for my trip as example I took all my climbing and backpacking gear and tossed it in the car and hit the road. I slept in my vehicle, cleaned up at rest stops and bought my food at grocery stores. I cooked on my little camping stove, had good meals and warm coffee in the morning to kick of amazing days out hiking. I loved every second of it. My biggest luxury was the money spent on a single coffee at Starbucks every day or so that was along the route so I could sit for an hour or so and enjoy the free (and extremely fast) wifi. <<the coffee is better at the Duncan Garage ;) >>
Anyhow only time will tell what the economy will do, all we can control is how we live in the present. Make wise choices and tomorrow is out of our control so don't stress about it.
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I'm not really concerned about the dollar. I've lived through a number of economic cycles now and that is what they are - cycles.
If you don't have to sell a house you hold through down times. Historically downturns have always been time limited and prices have risen again to an average of 4% a year.
Make sure you don't have to sell by buying what you can afford and having rental income ie. a suite if need be. The "underwater mortgage" wiping out equity in Canada can occur for recent purchasers who only put the 5% down, but that is a minority of purchasers who use (or qualify for) the 5% down and have bought recently. The median net worth of Canadian families is over $250,000 and a lot of it is home equity which is a fairly big buffer against a downturn.
As far as the dollar goes, we won't be going to the states much until our dollar improves. It will. Just might take some time. I'm okay with that.
Investing, I'll stick to Canadian Couch Potato and ride out ups and downs until I need the money in ten years or so.
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A low Canadian dollar means my job is more secure, because we're more competitive for our engineering services. When the dollar rises, it means that it's cheaper to buy stuff. So, kinda a net neutral in my book.
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It's a little annoying because I'm getting ready to FIRE in the next couple of years. I work for a foreign company that's doing well, so my job security is good. However it's worrying that 1. manufacturing is in the decline in Canada, 2. high tech is in the decline in Canada and 3. so many people seem to have huge huge mortgages. So our economy is mostly consumer based plus resources. Yurk. I am letting my asset allocation shift to reduce Canadian holdings a bit more.
On the bright side, I hope to be able to get a good price on a retirement home!
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DH JUST moved back to working in Canada last year after spending the last 20 years working in the US. We are really trying not to think about this :( He got a nice 30% pay increase to come back to Canada - with a ton more stress and hours. Now the loonie has dropped by almost 40%. So hard to think he could have gotten the same pay increase in his old cushy, laid back job with zero stress.
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DH JUST moved back to working in Canada last year after spending the last 20 years working in the US. We are really trying not to think about this :( He got a nice 30% pay increase to come back to Canada - with a ton more stress and hours. Now the loonie has dropped by almost 40%. So hard to think he could have gotten the same pay increase in his old cushy, laid back job with zero stress.
But hopefully you moved back to Canada while still holding US savings funds, so in a way they are worth 40% more to you if you were to cash that in and buy Canadian investments. Then hopefully in a few years we see a dollar back up in the 90cent range and you could be looking at a 20% return on investment just by hedging against the dollar.
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I'm not too worried. I have seen some positive signs with manufacturing picking up. It's a good time to invest with many stocks undervalued.
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DH JUST moved back to working in Canada last year after spending the last 20 years working in the US. We are really trying not to think about this :( He got a nice 30% pay increase to come back to Canada - with a ton more stress and hours. Now the loonie has dropped by almost 40%. So hard to think he could have gotten the same pay increase in his old cushy, laid back job with zero stress.
But hopefully you moved back to Canada while still holding US savings funds, so in a way they are worth 40% more to you if you were to cash that in and buy Canadian investments. Then hopefully in a few years we see a dollar back up in the 90cent range and you could be looking at a 20% return on investment just by hedging against the dollar.
We still do a lot of our spending in the US though (shopping, travel, etc) so it doesn't seem like a good idea to move what money we have (about 2-3 years US spending in cash) back over here only to have to trade it back for US dollars in a year. We do also have a fair bit of US investments (401k l, pensions, etc) that we were planning to leave in the US as we expect to continue spending a significant chunk of our expenses in US dollars.
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Unfortunately we have been saving in Canadian because we always thought we would come home. Now we don't know. Only 20% in USD. We've just been watching our net worth plummet on an international level the last few years. Oh well. Earning in USD so that helps.
Now the question is what to save in going forward with uncertainty as to where we will end up. We want to make a move somewhere more permanently in the next few years. Unfortunately I see a 60 cent Loonie and bad Canadian fundamentals for at least the next 5-10 years.
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With personal debt levels at 164%, the ongoing housing bubble in Toronto, our national debt, and our new government's commitment to spend even more in an attempt to get riches, I am absolutely terrified. It won't take much longer for those falling dominoes from low oil to finally get from Calgary to everywhere else. The last PM put all his eggs in two baskets--housing and oil. I'm really glad 40% of my portfolio is in US/International indices.
If, for every dollar a Canadian earns, they owe $1.64 (and rising), how does that Ponzi scheme finally end?
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Toronto isn't in a housing bubble.
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Toronto isn't in a housing bubble.
Really? What'll happen to Toronto housing when interest rates rise?
Here's a chart comparing house prices to income in Toronto:
(http://2.bp.blogspot.com/-94n8MZiunDM/VMvtJQ_e9HI/AAAAAAAAEeA/1JeikkeStgw/s1600/detached%2Bhome%2Bprices%2Bin%2Btoronto%2Bvs%2Bwaves%2Bvs%2Bcarrying%2Bcost.jpg)
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Toronto isn't in a housing bubble.
Umm... Was that sarcasm? :/
With the average sale price of a detached house in Toronto at $1.017 million and the average wage at around $87,000, you bet your butt it's a bubble.
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Is it to late? No, it's never to late to draw a good plan and move on.
For many years now, 70%* of our investments are outside Canada (45%US and 25% International) and our portfolio real return is 7.4% YTD, not that bad for a bearish market !
Now, about the 164% debt/income, it's fearful stats but pointless if the big picture is not taken into account. As an example, if your ONLY debt is a 90k$ mortgage @ 2.05% on a house with a 250k$ market value, your income is 55k$ and RRSP, TFSA and other investments worth 250k$, you have a 164% debt/income level but does it mean you are in a bad/scarry situation?
The bad result of the low oil price is many people keep driving around for no reason in their F-150 (or F-250?) burning the mondial oil reserve.
*60% of our net worth
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your income is 55k$ and RRSP, TFSA and other investments worth 250k$
Which would be fine, but most Canadians don't have that ^^. Not the ones I've met anyway. Liquid assets? Pshaw. Paycheque to paycheque, baby! House? Oh hell yeah, it's worth $450K. Me: "Umm... Didn't you take out a second mortgage as well as a home equity line of credit ?" :(
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your income is 55k$ and RRSP, TFSA and other investments worth 250k$
Which would be fine, but most Canadians don't have that ^^. Not the ones I've met anyway. Liquid assets? Pshaw. Paycheque to paycheque, baby! House? Oh hell yeah, it's worth $450K. Me: "Umm... Didn't you take out a second mortgage as well as a home equity line of credit ?" :(
Not the ones I've met neither, so this mean: 1-We haven't met each other yet, 2-The people we met are probably the same, 3-There is not many mustachians around here
I learned not to say things like "-your mortgage should be alomost repaid since you bought this house back to 1998!" because it makes me sad to ear this "-hell no! we changed the windows, remodeled the kitchen, went to Hawaï, changed our car (twice) and sent the kids to university so, we still owe the same because we maxed out the HELOC. Anyway, we are going to work until 85, at least!"
Most people I know with a sizeable NW have: 1-All of their NW locked into housing, 2-All of their investments in Canada, 3-All of their investment into high MER mutual funds
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Toronto isn't in a housing bubble.
Really? What'll happen to Toronto housing when interest rates rise?
Here's a chart comparing house prices to income in Toronto:
(http://2.bp.blogspot.com/-94n8MZiunDM/VMvtJQ_e9HI/AAAAAAAAEeA/1JeikkeStgw/s1600/detached%2Bhome%2Bprices%2Bin%2Btoronto%2Bvs%2Bwaves%2Bvs%2Bcarrying%2Bcost.jpg)
Doesn't that graph just demonstrate that Toronto is getting denser? I'm more familiar with Vancouver and I'm sure it's graph looks similar. The reason has a lot do do with the fact that SFH are being torn down and replaced with condo towers and townhouse complexes. So yes, the cost of land is increasing, but the density is also increasing. It doesn't seem logical to exclude multi-family units from a graph like that, you need to include them to get a true picture of the cost of housing.
If we had to move to Vancouver tomorrow, there's no way I'd look for a SFH in a suburb similar to the one we live in now. We'd be in a townhouse or condo. Just like if we had to move to New York City or Hong Kong or Tokyo. No one there owns SFH's, they're just not an efficient use of land in a dense city and no one there complains that they can't afford their own personal piece of land.
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In a densely populated area where the number of households are increasing faster than new housing is built, the ratio of property value to median or average income is going to increase. It's supply and demand. As more and more high income and/or high net worth folks move in, they buy the available properties and drive up the prices. Median or average income folks either already own or they rent. The SF Bay Area is a classic example. Very little new housing is being built, but people, especially high paid professionals, keep moving here. Every housing unit in the Bay Area could probably be absorbed by the households in the upper income deciles or quartiles. Low interest rates magnify the spread, but household income and assets are at least as responsible. I'll bet the graph for Manhattan or San Francisco would show the same pattern. And for a much longer time, especially in the case of Manhattan.
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The reason house prices are so high compared to income in Toronto is that interest rates are at record lows. That won't last.
People in a city with a median income of $70-something thousand won't be able to afford their $500k mortgages when interest rates rise to normal levels. That's when the bubble will burst, especially if people can't count on their jobs in an unstable economy.
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your income is 55k$ and RRSP, TFSA and other investments worth 250k$
Which would be fine, but most Canadians don't have that ^^. Not the ones I've met anyway. Liquid assets? Pshaw. Paycheque to paycheque, baby! House? Oh hell yeah, it's worth $450K. Me: "Umm... Didn't you take out a second mortgage as well as a home equity line of credit ?" :(
The median homeowner in Canada actually has a net worth at least 10X that of renters. Home equity only accounts for 1/3 of the net worth of homeowners in Canada - private pensions are the next largest asset. It seems like those living paycheque to paycheque are much more likely to be renters.
http://www.moneysense.ca/planning/the-all-canadian-wealth-test-2015-charts/
People who own $450,000 homes will have to have paid down $131,000 before they could access any HELOC room. 35% is a pretty big buffer for a downturn. Refinancing depends on ability to qualify which is based on credit scores and income and you'll have to have a minimum of $90,000 paid down. People who qualify for refinancing are generally good credit risks. Qualifying for both refinancing and a HELOC is redundant which leads me to believe you are making up a scenario rather than being factual.
Interest rates are low but government has an interest in maintaining market stability. Likely that they will continue to take measures to stabilize housing. We never did have the subprime lending the US did. That said, there can be drops in prices that are substantial in single industry towns like Fort McMurray or areas dependent on oil and gas and when combined with job loss this is a tough scenario.
I'd say that the real estate market in Canada is not standardized. Vancouver and TO have had very significant run ups. A lot of other places have not. Best case will be a longish period of time that prices are flat in Van and TO to even out gains like we've had in Victoria. An interest rate rise could trigger a drop. I'd be surprised if prices fall too much in Victoria, my bet is they keep going up for a bit.
And people with a median income of $70,000 won't qualify for a mortgage of $500,000. On $70,000 income you would need to first save up the down payment or get it from a relative and then you could qualify for a mortgage of approximately $260-320,000 assuming good credit and no other debt.
And fwiw I'd agree that densification pushes up property values and the effect is magnified as time goes on. Look at other major cities in the US and you'll see the same pattern. People in these cities will increasingly end up in smaller spaces, it will become more normal for families to live in condos like they do in Europe and Asia.
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I think we canadians are in for a bit of a rough time
I have a lot of friends who are just buying houses now, getting married, etc and are facing some pretty high housing markets. At least we're not toronto/vancouver. that is just stupid out there. But here in manitoba, even with our lower costs, its difficult to manage. With average mortgage payments of 1000-1400 i'm not sure how any of this will turn out. I was lucky and bought cheaper/earlier during the housing crash. I still think our housing is in a bubble that's ready to burst soonish.
I think this long run of low interest has change the thought of "debt is bad" to "its only 2% that's nothing!" Its too cheap to loan money and now we're seeing everyone with big mortgages, and car loans etc etc etc. A whole generation has started their adult life with record low interest rates. I also know of a lot who have run away to work in the oil patch in alberta/sask and no one thought the bottom would ever fall out of the oil industry and now it has. All those big mortgages, car loans are now looking pretty terrible now. Alberta is in a tailspin
I know for sure, i'm avoiding trips to the USA, and trying to not purchase US goods as much as the choice can be better. Importing anything will hurt, vacations will be way more expensive. Exporting from canada should be better but that's a limited market. I'm traveling more in canada after this for sure, especially with a 70cent loonie
I'm not so worried about me, but i am worried about the people around me
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If nothing else, this will be good for Canada's travel industry.
I do feel that consumer goods and groceries in Canada will soon creep upwards in price. The norm has always been for the US to be a little cheaper for groceries/goods, even with a crappy exchange rate. This whole situation of cheaper groceries, etc in Canada will change soon. Still, for now, I try to compare everything based on current exchange rates and am doing a lot more shopping in Canada than is usual for me. That said, there are still many things that are cheaper to get in the US.
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My employer is trying to do as much work in its Canadian offices right now as it possibly can due to the exchange rate. So that's something in your favor. The Canadian client work I have to do in late 2016, we'll barely make any money on at all. So my work will be training Canadians to do most of the billing instead of simply doing it myself.
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Is this time different than the last time? Or the time before that? Or the one before that?
Eventually these doom and gloom scenarios start sounding the same. Some people get poorer, some get richer and some never learn. Over the long term nothing has changed, the loonie has been going up and down for decades. Keep paying down the mortgage, keep investing savings and it'll work out fine,10 years from now this will all be part of the history books.
Not nervous.
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totoro, where does this data come from:
The median homeowner in Canada actually has a net worth at least 10X that of renters.
and
private pensions are the next largest asset.
I didn't see it in the MoneySense figures - which look like they are based on data from before the decrease in the price of oil.
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Renters vs. homeowners net worth:
http://economistsoutlook.blogs.realtor.org/2014/09/08/net-worth-of-homeowners-vs-renters/ (US)
Google: Changes in Household Net Worth in Canada: 1990-2009 for Canada.
"a typical homeowner was 24 times wealthier in 2005 (see Table 2). The gap between the wealth of owners and renters has been widening for at least two decades."
Very recent and detailed Canadian data here: http://www.cmhc-schl.gc.ca/en/hoficlincl/homain/stda/data/data_012.cfm (go to home equity and net worth)
Pensions and net worth:
Following closely behind the principal residence were private pension assets, representing 30.1% of the total value of assets held by Canadian family units in 2012.
http://www.statcan.gc.ca/daily-quotidien/140225/dq140225b-eng.htm
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While Toronto and Vancouver will always be pricier cities, I think you ignore the effects of post-2008 emergency interest rates at your own peril. Canadians have gorged on debt while savings rates have plummeted. Let's talk in a year or two once rates have normalized a bit. If families are earning good salaries in these cities, and can handle higher servicing costs, then your fellow Canadian is as prudent as you say they are ...
I am far more concerned with the 45 and under crowd in Canada who are the ones shouldering more and more of the housing debt with more precarious employment:
http://www.bloomberg.com/news/articles/2015-12-15/bank-of-canada-sees-elevated-housing-crash-risks-as-debt-climbs
And you can ask these same young Canadian families what share of the 'pension' wealth they are likely to hold going forward.
I believe Canada is a great place for the 60+ crowd. It is a very different prospect for those coming up the ranks now.
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I don't believe that something that lasts a decade can accurately be characterized as an 'emergency response'. What history does show; however, is that rates do rise and fall. I don't expect interest rates will always be as low as they are now.
Where is your evidence of "gorging on debt" and what measure are you using to demonstrate this? Are you talking about debts for investments or consumer debt? Please provide criteria.
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I find Garth Turner to have a great no BS blog with good information that doesn't have the media spin on it.
http://www.greaterfool.ca
His recent post is touching on this very topic.
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Ok, thanks for the links. They say
Following closely behind the principal residence were private pension assets, representing 30.1% of the total value of assets held by Canadian family units in 2012.
Private pension plans include employer pension plans, RSPs and RIFs. :-) I was wondering who were all these people with private pension plans, but this number includes RSPs.
This suggests that 60% of Canadians' net worth is held in their principle residence, and these numbers are from 3 years ago. I bet prices have increased substantially since then, so that an even higher percentage of net worth is based on your home.
Some of the numbers seem high though - for example the *average* network worth of a 45-54 year old household without a mortage is 1.375M CAD in 2012? Could Canadians be more mustachian then I thought? When I sanity test this, 60% of 1.375M is 825K. Yet the average equity in principal residence is only 411K. Something's wrong somewhere - there's about 400K CAD missing.
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The average is skewed by the upper 25% - median is a better measure.
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Yeah, they don't actually have data for the private pension values. But the net worth values on this linky: http://www.statcan.gc.ca/daily-quotidien/140225/dq140225b-eng.htm (http://www.statcan.gc.ca/daily-quotidien/140225/dq140225b-eng.htm) say a median net worth of 244K CAD per family in 2012, and in the other link they are saying its 785K CAD. I expected a number like the first, but not the second.
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Yes, you absolutely need to look at Median. Put all of us on here and Bill Gates in a room and look at 'averages'. According to Stats Can these were the median net worth for various family types in 2012 http://www.statcan.gc.ca/daily-quotidien/140225/t140225b001-eng.htm
I was talking before of income to debt. My concern is around what Canadians actually earn versus the rising cost of housing and personal debt levels.
http://www.torontocondobubble.com/2014/01/does-income-growth-drive-housing-market.html
I would love to believe that Canadians are taking advantage of this low interest environment to invest, but it appears to all be going to primary residences (And unless someone sells and downsizes to a more affordable home, it just results in higher property taxes and lifestyle costs, so not usually the investment the media would have you believe).
http://www.wsj.com/articles/canadian-household-debt-hits-fresh-high-1450103597
I would argue that Canadians are some of the least Mustachian on average. We didn't get hit hard from the 2008 crash thanks to the commodity boom and emergency maneuvers by the BOC to keep our housing afloat, so we never had our wake-up call as they did elsewhere (US, Ireland, Spain, etc.)
As for savings rates ...
https://thewalkerreport.files.wordpress.com/2015/03/savings-rate.png
Net worth looks fine in isolation, but if it is primarily based on inflated home values, then it is all really a deck of cards. Again, I am talking here about the 45 and under crowd, and not the baby boomers who have much more equity in their homes and Jurassic pensions that no longer exist for most.
I hope I am wrong about where we are heading, but I don't think I am.
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Given that you are linking to a site you run (?) named "the Great Canadian Housing Bubble" you definitely have a certain perspective on matters.
It is one I don't share. Housing is the biggest investment Canadians make. Just because you live there doesn't mean it does not increase your net worth and you cannot access the equity through selling, refinancing, HELOCing or reverse mortgaging. The majority of the seniors in the best shape financially in this country are those with home equity that they eventually access later on.
I agree housing markets are cyclical and they cannot always go up, but over time they have, historically, recovered and gone up unless it was a particularized location in a boomtown single source economy which comes to an end for good. In fact, housing has increased at an average of 4% per year over time despite huge downturns like the late 1980s. If you have to sell during a downturn you can lose a lot of money, as people in Fort McMurray might be discovering. Plan for the worst, buy something with a suite or a multi-family.
If I understand correctly, what you really meant by "gorging on debt" was that the minority of homeowners in Canada who are under 45 and have less than 20% down might be at risk if rates rise and they lose their jobs and the housing market drops. If so, I would agree with that.
And Garth Turner has been very wrong about housing in Canada for more than a decade now. He is good at self-promotion and has someone with talent finding photos for him.
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It is true that I believe Canadian real estate is in a bubble, especially in certain locations, and you are right to point out my bias. I have come to this conclusion based on my own research, and I suspect you feel the same way about your opinion. Fair enough. Life would be boring if we all agreed on everything all of the time. And I agree, Garth is far to confident and opinionated, but I like his suggestions on a balanced portfolio and exposure.
My concern is not just for homeowners under 45, but for most younger Canadians and their families. Our (lets call it a run-up on personal debt instead of gorging) personal debt has risen at a record pace compared to most countries and the only ones that seem to have us beat their have large guaranteed wealth funds for their citizens.
http://www.huffingtonpost.ca/2015/02/05/household-debt-crisis-canada_n_6623322.html
Since QE started and low interest rates took effect post 2008 we have seen a lot of Canadians take to record borrowing on the back of cheap money and rising home prices, not income gains.
It is probably important to note that we are at a tipping point when it comes to aging as well. The 45 and under crowd of working Canadians likely outnumber the 45 and older crowd at this stage:
http://www.indexmundi.com/canada/age_structure.html
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You are concerned about the increase in personal debt for most younger Canadians- so anyone over 19 and under 45 who lives in an area where house prices have risen since 2008? This includes Vancouver and TO and some other spots?
I would be somewhat concerned if I was looking to buy in Vancouver and Toronto. Prices just don't rise up in a straight line forever. That said the long-term stats show housing has become less affordable compared to income over time and more so in very desirable places. It was easier for your grandparents to get in the market.
It is; however, far easier for Canadians to buy a SFH than it is in many countries. Doesn't mean it is something everyone should do, but there is a reason home ownership is at 70% here. People will still want to own and will likely own smaller places and have more family help as prices continue to rise faster than incomes going forward. Doesn't mean prices won't ever drop, but I wouldn't hold my breath for a permanent drop and most people should be able to ride out some bad years with planning.
My concern is not so much with mortgage debt, which is often good debt imo. I'm more concerned about those with credit card debt that they don't pay off each month. That can get out of hand fast. And those with big student loans that never pay off.
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I bet if we were to look at housing prices in London (England) 30 to 40 years back, we could see similarities to pricing in Toronto and Vancouver. Here for example, we could be at the equivalent of 1989 London: http://www.economist.com/blogs/buttonwood/2013/09/house-prices (http://www.economist.com/blogs/buttonwood/2013/09/house-prices)
Heavily leveraged mortgagors would be in a tough spot if their mortgages taken out in 1989 had to be renewed in 1994. But if they were able to make it for 10 more years to 2004 they'd get all their money back and more.
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Yes. I think there are enough similarities not to disregard the possibility that the housing market is never the same as it was in the past in terms of affordability, and that it should continue its upward trajectory long-term - just not uninterrupted by short-term downturns. It will be a harder market for our children to enter - but they still will be pretty motivated so I don't see a long-term collapse.
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I can't speak for any market other than Toronto, as it's the only one I've spent significant time studying.
Fundamentally, the price of housing (I'm talking detached family homes, not condos . . . Condos behave a bit differently) in Toronto is driven by limited supply and constantly growing population (due to great employment opportunities, some of the lowest property taxes in Canada, tremendous diversity and acceptance of other cultures, etc). When a bubble pops, the market tanks. That isn't likely to happen to Toronto. At absolute worst case, I'd expect a period of maybe 5 or 6 years of flat gains when interest rates start to rise. Million dollar home averages are skewed by a few super high value areas and are not the norm across the city. There are plenty of places you can buy a nice detached house for half that.
People like Garth Turner have regularly predicted an immediate housing bubble pop and the immenent end of the world just around the corner for two decades now. What is it about his predictions this time that makes you think they're correct when they've been so consistently wrong for so long? It seems to work great as a way to generate attention and sell financial products for Garth but from where I'm sitting still has no basis in reality. Toronto is following the same pattern that most large cities follow. London, New York, San Fancisco . . . As prices go up and people keep moving in intensification happens. Toronto is the financial centre of Canada. It's got a huge number of jobs and employment opportunities. It has very low crime for a big city. Lots of green spaces. Low taxes. Pretty mild weather compared to the rest of Canada. There are a ton of reasons that people keep moving here.
As I've previously said . . . There's no housing bubble in Toronto.
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This is what happened in Victoria. After a long run up prices were flat-ish for 6-7 years and now they are going up again. There was no crash, nor do I expect one to occur. Even if prices decline due to interest rate increases in the future the monthly payment/affordability might not be any better than now. Only someone buying with a big cash payment would benefit. I completely agree with you about Garth.
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Garth is interesting because he provides a counterpoint to mainstream media and basic mainstream beliefs. Yes, there could be a housing crash in certain Canadian markets, and yes, many houses are overvalued. When interest rates rise, the million dollar homes in Mississauga will be a hard sell.
His overall message is correct. People tend to look at the monthly cost at current interest rates, and have little concern about the amount of debt they are taking on long term. Young people aren't familiar with 6 or 7% interest rates for mortgages. When interest rates rise, their homes may no longer be affordable.
And Garth is absolutely right that there is a cult of real estate in this country. People are very weary of "the markets" because they think investment = gambling. Houses are a safe haven to put your money into, because prices always go up. Ask someone in Calgary how they feel about their housing "investment" these days.
And he is quite good at educating people about financial investments. He often quotes stats about how few people are using their TFSAs to their full advantage. Many if not most Canadians believe the TFSA is a savings account, where they can only earn <1% interest and take money in and out of for short term use! Very few people understand how to use our investment vehicles for, you know, investing. Partly because they don't know, but also because their money is tied up in their huge mortgage payments, because housing is all they know. Savings rates have gone way down in Canada over the last couple of decades.
I applaud Garth for trying to change the tide in Canada and our over abundant faith in real estate. (Btw he has been writing his blog for 7 years... Not two decades!)
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Garth has been predicting doom for Toronto's real estate market for much longer than he has been pushing bad financial products through his blog.
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Do you read his blog? He "pushes" the same sort of advice you see around here, diversified etfs... What is the bad investment advice you're referring to, specifically?
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This covers a bit of his quality investment advice history:
http://garthturnergreaterfraud.blogspot.ca/p/garths-predictions.html (http://garthturnergreaterfraud.blogspot.ca/p/garths-predictions.html)
I'll admit to not really being up to date on what he's pushing in the last couple years. If he's now selling low MER passively managed vanguard stuff then my comment is retracted. That doesn't change the fact that historically following Garth's advice would be pretty bad for your wallet, but maybe he has seen the light. If you learn from investment mistakes, he should be a genius by now.
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It's generally not helpful to critique something that you haven't actually read. Garth doesn't push any products, and his advice is quite good for Canadians who are interested in investing. He advises people to stay away from mutual funds, individual stocks, and to invest in a well diversified portfolio of low cost etfs.
Again... If you're going to form an opinion on someone's writing, it helps to read it directly yourself. Then you're welcome to diss him intelligently, if you still find the need!
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Again... If you're going to form an opinion on someone's writing, it helps to read it directly yourself.
The definition of insanity is doing the same thing over and over and expecting a different result. I've read years of bad investment advice directly from articles written by Garth before tuning him out entirely. I already linked you to a quick summary of some of it. That's where my opinion of his financial prowess was formed, and why I don't read his blog currently.
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Fair enough, I didn't start reading his blog until 2009 or so. Since then, it's been solid advice that's worth reading, for reasons I described above. He's helped a lot with Canadian-specific investment advice that I haven't found elsewhere, though sometimes this forum is also good.
I think a lot of people in the financial world were pushing mutual funds in the early 2000s. Vanguard and other low cost etfs did not exist back then in Canada.
ETA: I can think of one specific piece of Garth's advice that I'm very happy I listened to, and that was to invest in primarily US ETFs when the dollar was at par. So for me, listening to him has worked out really well financially, so far!
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Hmmm, so could it be that Garth's finally got it right? Or is this a case of 'even a stopped clock is right twice a day'? I think that blog critiquing Garth is pretty funny though.
I think it makes a lot of sense to compare renting versus owning carefully. Especially if you don't have kids and are likely to be moving. I feel I was lucky with my first 3 houses (1989 to 2000) in that I broke even on the first 2 & came out a bit ahead on the 3rd one. We've had the 4th one for 16 years now and it's much the same overall. Big gains the first 8 years, not so much since 2008.
I've looked back on the house we sold in Calgary for $195K in 2000. It would have sold for around $750K before the collapse in oil prices. Sometimes I wonder if we should have kept it, but I think we're further ahead with our investments than we would have been with the house. Plus I would have had all the stress and hassle of being an absentee landlord.
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His writing is far more nuanced than "50% housing crash will happen across Canada this year!" Yes, I agree that there is a fair amount of doom and gloom, but lately he has been equally doom and gloom about the state of Canadian financial markets as he is about housing.
Look, his main argument is that Canadians are massively indebted and that our economy is overly reliant on oil and housing. He has many reasons for saying so, and I suggest you read his blog to find out more detail, rather than an anti-Garth blog that only quotes his articles from 1997-2006.
I'm not even a huge fan of his work, and I take it with a grain of salt, but I don't see the point in attacking him if you don't even read it.
If you had invested $195k in index funds in 2000 it would be worth about $600k now, without the maintenance, insurance and property tax costs of a residence. And you wouldn't have been able to predict the timing of sale, so you could have risked the sale of your single asset being worth far less than $750k after the Calgary bubble burst.
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Who in this thread has attacked Garth without reading his work?
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I'm not worried about the low loonie, or a downturn in the Canadian economy, because I work in a somewhat protected job in a counter-cyclical industry and very little of my spending is foreign-exchange-sensitive (I spend much more on mortgages than on oranges).
Do I think Toronto and Vancouver will have a severe housing correction? No. As others have pointed out, those cities have expensive single-family homes because many, many more people want them than can have them. Maybe upper-middle-class residents of those cities now understand what poor folks in gentrifying neighbourhoods have been dealing with for decades!
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Who in this thread has attacked Garth without reading his work?
Well, you said you stopped reading him back in the days when he was recommending expensive mutual funds, which was his pre blogging days. Maybe I should say, without reading his *recent* work.
As for scottish's comment, I've heard the "stopped clock is right once a day" critique of Garth before, and it always strikes me that this sort of comment is coming from someone who doesn't actually read his blog, because, as I said, there's a lot more to it than simple RE predictions. I could be wrong, but that was my impression.
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Is Turner currently predicting a real estate crash on his blog? Has he done so pretty much since the inception of his blog and before, continuing to the present day? I know that this is the case because every few months his name gets mention in a news article about housing . . . Great advertising for his business. Not great advice though. The broken clock analogy is correctly applied to someone who keeps making a wrong prediction until it comes true. Eventually there will be a housing downturn. Will it be tomorrow? Garth has been making wrong predictions for quite a while now, I'm curious why you think that this time is the exception.
If you've been dazzled by Garth's prowess recently, it would be a good idea to read the many completely wrong things he has prognosticated in the (recent) past. Until you do so, you are boosting his work without having read it. Just mentioning it as that sort of behaviour seems to upset you.
FWIW, after checking into it, I've noticed that Garth runs a company that adds extra fees to pick funds and stocks for people. A mutual fund that has a low MER is suddenly a lot less appealing when you have to pay someone else an extra percentage to pick it. He's a great salesman . . . But that doesn't translate into someone who is great to hand your money to, particularly with his track record.
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I was just having fun with it. I share concerns about excessive debt levels and our poorly diversified industrial base, and I'm not thrilled with the declining value of the dollar as I get close to RE. But I don't really have an opinion as to whether his forecasts are accurate or not.
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This is MMM isn't it? I sometimes feel like I am on a different forum :) But in all honesty, how much of someone's net worth should be in their home? What did MMM recently do in regards to his home? Joshua Sheets on Radical Personal Finance? Etc. Very few of the sources I go to for information on financial freedom support a home more than 3 X income, or home-as-a-retirement-plan single strategy that has started to become a national strategy in Canada (and basically has to be at these prices).
How much of someone's net worth should be in their home? Median income for a family in Toronto is approximately $73,000. What is the median price of a home or condo? How much are they putting aside for investments/emergencies?
http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil107a-eng.htm
I do find it frustrating that any conversation with Canadian housing these days goes to Garth. Or a 'crash' or 'perma-bears'. Many of us aren't blind followers and haven't been calling this a bubble for 'decades'. Most are concerned at the post 2008 run-up in prices caused by temporarily low interest rates and looser lending standards that were temporarily rolled out to deal with the situation (do you remember 40 year mortgages not so long ago?). I don't believe in a US style-crash, but we don't need one for this to be a problem. The damage is being done to the finances of our younger families as we speak.
http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/house-poor-couple-debt/article24370722/
For what it is worth, I believe Garth started his current blog around 2008 when easy credit started flooding the system. He constantly reminds his readers that he is not calling for a major crash but a slow, grinding unwinding in the overheated markets, which can be just as devastating if you have recently gotten in on the party.
But again, I am not Garth, nor do I worship him, and most of the people who are concerned about Canadian housing seem to be quite balanced in their financial outlook (i.e. your primary residence should not be most of your your net worth, use ETFs, balanced international approach sort of thing). To say nothing of the BOC, OECD, IMF, Deutche Bank, FITCH, and their opinion on the situation.
I read Brad Lamb too for what it's worth :)
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I find all the housing bubble conversations (not here, just everywhere around me!) really frustrating, like we all just go around in circles. I get all the sides and perspectives. But....I have to live somewhere! And I have to live in an area that works for me and my family, and where I can find work. Right now, that means Vancouver Island. Which I LOVE. But which is expensive.
Real estate in Victoria (when my parents and I moved here in the early 90s) was flat for a really long time. It went gangbusters through to 2009ish, then everything just went flat, never really went down. I guess it's been going up again more recently? We moved out of the city to a rural area in 2009, and got a huge amount more for our money, but still paid $400K, and were probably grossing together about $80K at the time . No where near the 2.5x your income that everyone used to talk about. And also no where near what the bank was willing to lend us! We're probably at closer to $120K combined gross now, and the mortgage is less than $300K, so we're closer to the 3x mark now. But that's not including insurance, property taxes, etc. The market's still flat here. If we sold tomorrow, we MIGHT get what we paid. We're planning a lot of sweat equity to be able to break even.
Our mortgage is a little more than rent would be, but only if you don't count our principal as savings. We've looked at moving to tiny condos in the middle of towns, living on our boat, renting cottages on other people's properties. We could save a little, but mostly the savings would be from not gardening/homesteading, etc. But...then we'd be trying to save all those pennies to re-buy the homestead, because that's how we want to live. And likely the "saved" money would then be spent on groceries.
DH is from the Maritimes. Housing is MUCH cheaper; could easily find a home for less than $200K in an area we liked. However, then bigger money goes into heat, property taxes, car insurance, and is lost through lower incomes. Does it not even out?
Maybe home prices will go down. Maybe they will go up. But in the meantime, I live in an expensive area. We have good jobs and a good life. So far, doing something radical to save on housing costs hasn't seemed worth the trade-offs, so we just live in the way that works for us. I wouldn't invest in real estate rentals in my area. But timing the market here also doesn't seem to make any sense. And I don't really think that all this Canadian investment in real estate is really about people making stupid or smart decisions; it's just people needing to pay for a place to live, in markets they don't have a lot of control over. I mean, you can optimize in every city; there's always a range from poverty to ridiculous mansion life, and people do do stupid aspirational things. But I really think that a lot of people are just stuck within a set of options that are all imperfect.
As another quick example, my sister in Vancouver gave the following insight: people in Vancouver who own houses are indeed spending 50-70% of their incomes on their homes in order to buy (or often even renting). If you're lucky, the 30% of your income that's leftover is still enough in $ to be able to afford the other necessities of life. Recent studies show that there's no real advantage to living in the city vs the suburbs; the costs even out, so it becomes a lifestyle decision.
The thing that always strikes me in Vancouver (besides that there is a LOT of $ circulating in the upper classes) is that a lot of the ordinary houses are not particularly well maintained. It costs so much just to own the house that there's not a lot of money left for maintenance or updating, unless you are of the super-wealthy.
I don't know really where I'm going with this, except to say again that I think most people are just trying to do the best they can in imperfect situations where food, housing, and utility costs are rising, and wages are often flat. Credit makes up the gap. Some people take that WAY too far because of aspirational consumerism, but others are just not willing to live at a level of poverty that would allow them to create more savings. I don't blame them; I struggle with that too. That's why I worry about the larger economy--I think a LOT of people don't have a lot of wiggle room. And I think things are going to get worse before they get better.
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backyardfeast, I agree that most are just doing what they need to in order to maintain a standard of living that is slowly becoming less easy to afford. I didn't mean to paint the masses as overtly irresponsible. I sympathize.
Here is a statistical look at what I am talking about in regards to the under 45 demographic in Canada:
https://pbs.twimg.com/media/CXZ-7-tVAAI_Kfu.png
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I don't agree with a one-size fits all approach to looking at housing (whether MMM's, Garth's, Jacob's or anyone else's) which states that you shouldn't buy something more than 3x income. Ridiculous assertion for some Canadian markets anyway. Review the information presented by others and then make sure you do the math yourself for the options available to you in your market and based on your circumstances.
Personally, I view a home as an investment until FI - I don't take it out of the equation until then. No other investment is going to come with the low interest leverage. A home appreciates on the entire value - including the amount you have borrowed, and this gain is tax exempt when you sell if it is your primary residence. And the stats demonstrate it is a solid investment if you can afford to carry it through the ups and downs of the market. A terrible investment if you can't.
As a result, we have purchased multi-family homes which pay their own way and provide us with housing and vacation places. Even in a flat market we get the benefit of the principal pay-down by other people's money. Our own home is a triplex and the two other rental units cover the mortgage. Our vacation house is a vacation rental in the summer.
If we can find a property in the core of Victoria, a very expensive and competitive market, and make it work to pay our mortgage and provide a place to live I'm sure others could as well if that was something they wanted to do. Of course, a lot of people don't look at housing through the lens of investment but of home and, as a result, the 3x income formula might be a better fit as they want a SFH they never move from or rent out.
As a result of this strategy and some others we are FI. We are now considering buying a SFH dream house in Victoria knowing that the long-term capital gains tax exemption will work in our favour to shelter appreciation gains on high-end housing over the long-term.
None of what we have done is in line with the typical views on housing in this blog. What I can say is that it has worked very well for us. And we are not holding our breath for the big downturn to buy either. We'll buy when we find the right place and have the right amount of money saved to put into it. There is only the deal of the day and your own calculations as to affordability.
As far as that debt chart goes, there is good debt and bad debt. Housing debt is usually good debt unless you have to sell in a down market. Of course people under 50 (the chart doesn't actually cut off at 45 from what I can tell) are going to owe more now that houses have appreciated faster than incomes. Mortgage debt has been increasing fairly constantly because housing does appreciate faster than income overall. Take the mortgage debt out of the chart and limit it to other personal debt and we'll see what is what.
The biggest reasons people have to sell are death of a partner, divorce or disability. You can insure against death and disability. Divorce is by far the biggest risk to this purchase. In a rising market it isn't a problem, but if markets even just stay flat the transaction costs involved in selling will push you into a loss position. Not a hugely difficult thing to recover from, but add in a falling market and it can be catastrophic. I'd say if a relationship is not feeling extremely solid, that is a reason not to buy. Otherwise, trying to time the market is a bit of a fool's game.
And I would agree that the vast majority of people are not just being foolish or "gorging on debt", they are responding reasonably to the current market conditions and making the best choices they can in the circumstances. There are quite a few people out there pointing out their "idiocy" which is both disrespectful of others and seems to be a bit of an ego trip for those who believe they know better. We have two decades of this talk in play now - from Garth and more recently from the bubble-theorists. That is a long time to be waiting to buy a home for your family. And again, if rates rise a lower price won't mean lower monthly payments.
I remember in the 1980s when the Vancouver housing market crashed. It was not easy for a lot of people, particularly those with multiple properties bought with a view to profit as rates skyrocket and prices dropped. That said, those that held onto their primary residences, which was the majority, and rode out the downturn would have been able to retire some years ago on their equity gains alone if they moved to a lower cost area.
I don't have a crystal ball so I don't know what will happen next. Nor does anyone else here. Government policy can influence the markets to a degree and I believe based on past performance that government will develop policy that will support a flat market, rather than a bursting market, to address unsupportable rates of appreciation. Prices could drop a long in the big run-up markets, but those that can hold through this should be okay if past performance is a valid predictor.
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The more I read the comments here and the more I look at certain areas across Canada I see this myself..
- high prices are a very regional thing not a National problem
- the isn't a housing bubble , we should call it a Mortgage Rate Bubble
- McMansion syndrome
I really like the comment earlier about Toronto and Vancouver being very unique as they are fast growing major metropolitan centers that create their own population, are the major points of entry for immigrants wanting to buy property and move to Canada and all happen to be great cities. I just couldn't see demand decreasing there .
BackYard Feast, Im still surprised you think it is expensive to live on VancouverIsland. I re-affrim it is very affordable from my personal perspective. As for housing costs on VanIsle, we have a few factors working against us ... we have many people who buy up property for vacation homes, we have many people who move here for retirement, we have location costs>the beauty of living along the Ocean is in high demand, we have limited land for development> basically the east highway corridor. Housing is super cheap if we want to live in Port Alberni or Gold River but we all want our seaside towns :) Im struggling to find property to buy for my small home (600sqft) I want to buy for FI but know it will have to be deep inland and remote to so it will have to wait until the kids are out of school.
Now we have yammered alot about property and Garth Turner LOL
Anymore thoughts on buying VCN ETFs next year with our next TFSA limit bump or RRSP top ups? Do I get myself out of the heavy equity based investment of Canada and the TSX and just stick with VXC (World/US) for its vast diversity. VCN is basically on sale now but we also need to as stated realize our low dollar is buying less shares of VXC.
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Enjoying this thread. :)
Garth is interesting because he provides a counterpoint to mainstream media and basic mainstream beliefs. Yes, there could be a housing crash in certain Canadian markets, and yes, many houses are overvalued. When interest rates rise, the million dollar homes in Mississauga will be a hard sell.
His overall message is correct. People tend to look at the monthly cost at current interest rates, and have little concern about the amount of debt they are taking on long term. Young people aren't familiar with 6 or 7% interest rates for mortgages. When interest rates rise, their homes may no longer be affordable.
And Garth is absolutely right that there is a cult of real estate in this country. People are very weary of "the markets" because they think investment = gambling. Houses are a safe haven to put your money into, because prices always go up. Ask someone in Calgary how they feel about their housing "investment" these days.
And he is quite good at educating people about financial investments. He often quotes stats about how few people are using their TFSAs to their full advantage. Many if not most Canadians believe the TFSA is a savings account, where they can only earn <1% interest and take money in and out of for short term use! Very few people understand how to use our investment vehicles for, you know, investing. Partly because they don't know, but also because their money is tied up in their huge mortgage payments, because housing is all they know. Savings rates have gone way down in Canada over the last couple of decades.
I applaud Garth for trying to change the tide in Canada and our over abundant faith in real estate. (Btw he has been writing his blog for 7 years... Not two decades!)
Since you asked... I'm thankful. I bought my houses in 2008 and 2009, LONG before the idea of early retirement had occurred to me. From that perspective it was (so far) a great decision. Having renters paying off most of my mortgages for me and the value of my homes increasing automatically without having to think about it (and a couple other lucky decisions) meant that when I did discover MMM 13 months ago I did some math and realized how close I already was to early retirement. If I'd been renting I would likely be 10 years off, not less than 2 years off.
Now that the market is stalled, so many are getting laid off, and the economy sucks the only down side to me is that I shouldn't sell my houses now. I can think of 4 friends off the top of my head who are currently buying or who have bought a home in the last year and I don't think that the doom and gloom scenario is going to last forever. As someone else already said, these things go up and down regularly, why is this time different?
I really hope things get better by 2017 so I can sell my houses and FIRE without dealing with rentals. I also hope things don't crash spectacularly, but I think there's such a low chance, I'm not stressing about it (usually).
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totoro, are you guys diversified outside of real estate as well? And did you ever have problems with the absentee landlord scenario?
Every year I used to look at buying a rental property in Canmore, but I was never happy with the way the numbers added up. I'd still love to have a place in Canmore if it was even cash flow neutral for the reasons you outlined, i.e. a vacation property that we can use and generally pays for itself.
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Yes, we have other investments.
As far as RE goes, we own places in Victoria and another place I travel to frequently for work and vacations - we are staying in it right now for a ski trip.
There have been some issues with renters over the years, but nothing that could not be managed from a distance with the people I have previously hired to help with various things. The problems are pretty minimal if you use good screening, but they can occur and you have to know the res ten laws. I prefer Airbnb short-term rentals now for various reasons including higher income based on lower occupancy and the frequent inspections of the unit.
I don't know about the rental market in Canmore and what types of renters and properties are available but our cash flow is helped greatly by the fact that our places are more than one unit and are all located in popular destinations.
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--apologies for hijack--
BackYard Feast, Im still surprised you think it is expensive to live on VancouverIsland. I re-affrim it is very affordable from my personal perspective. As for housing costs on VanIsle, we have a few factors working against us ... we have many people who buy up property for vacation homes, we have many people who move here for retirement, we have location costs>the beauty of living along the Ocean is in high demand, we have limited land for development> basically the east highway corridor. Housing is super cheap if we want to live in Port Alberni or Gold River but we all want our seaside towns :) Im struggling to find property to buy for my small home (600sqft) I want to buy for FI but know it will have to be deep inland and remote to so it will have to wait until the kids are out of school.
Stasher, I think you're right that my lenses are tainted because of all my years in Vancouver and Victoria. Truthfully, we haven't looked at housing in other places for about 6 years--and housing costs in much of the rest of the country have increased considerably since then, catching up, as it were. I was in Edmonton, for instance, in 2001-4 or so, and when I moved there, it was still quite affordable; when I left 2 years later, it was on the verge of booming. A lot of my school colleagues had a really difficult time finding affordable rentals in the next several years.
On the Island, you're right that it depends where you're looking and what you're looking for. Our issue with saving is that we lived exactly to the MMM template in our early years, but weren't earning much money (I was in school forever! :) ), and now that we're earning money, we're emotionally done with sharing walls with people, with renting, with having neighbours a few feet away, etc. At the same time, I will be working for many years yet (DH will be the one semi-retiring), so we are looking at homes on property close to my work-city. Our long term dream is very low cost, remote small island living (depending on climate change, of course!), but as you say, that will wait for now for practical considerations (I love Thetis, btw ;) ), which means we're competing with everyone else for the same areas. You're absolutely right that places like Jordan River, Sayward, Malcom Island, Port Alice, etc etc are GORGEOUS and very inexpensive. They are also a lot wetter and greyer for my garden habit, though. We could also move to a small, in-town home in any of the communities in our area for $250-300K and live very comfortably, just not with the hobby-farm life we want to. I did tell my DH the other day that, if we ever decided we just wanted to be FIRE asap, there were very comfortable townhomes for sale in your town for $180K. First world problems, to be sure!
I think it's just that "affordable" is relative, and I dream of places I could buy my acreage + character house/farm for 2x our income. There are indeed many places in BC (and Canada) I could still do that, they just aren't near where I would be able to work. Oh well! We're not exactly suffering in our amazing VI life! And we recognize that we are getting a LOT more for our money here than we would be in the cities.
--end hijack--
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I managed to arrange a remote working situation with my employer and allowed me to move to Vancouver Island two years ago. I still need to go to downtown Calgary for meetings, of which I am doing right now with my previous visit last November before Christmas. All I can say is it is very very very quiet and weird feeling downtown right now. I also just read this article this afternoon.
http://www.macleans.ca/news/canada/the-death-of-the-alberta-dream/
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I managed to arrange a remote working situation with my employer and allowed me to move to Vancouver Island two years ago. I still need to go to downtown Calgary for meetings, of which I am doing right now with my previous visit last November before Christmas. All I can say is it is very very very quiet and weird feeling downtown right now. I also just read this article this afternoon.
http://www.macleans.ca/news/canada/the-death-of-the-alberta-dream/
Nah! That's just what happens on gloomy, cloudy days like today. Just wait until the sun comes back out.
In all honesty though, I work in Downtown Calgary and I haven't noticed a difference at all. I just looked out my window to check: lots of peds, lots of traffic. But to be fair it's possible that I'm just so wrapped up in my protective oblivious bubble that it would take many more tumbleweeds for me to finally take notice.
I did, however, appreciate a seat to myself on the bus this morning. Maybe you're on to something.
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Nah! That's just what happens on gloomy, cloudy days like today. Just wait until the sun comes back out.
In all honesty though, I work in Downtown Calgary and I haven't noticed a difference at all. I just looked out my window to check: lots of peds, lots of traffic. But too be fair it's possible that I'm just so wrapped up in my protective oblivious bubble that it would take many more tumbleweeds for me to finally take notice.
I did, however, appreciate a seat to myself on the bus this morning. Maybe you're on to something.
Quiet in my world anyhow, I work in oil & gas so see it first hand.
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Here is a statistical look at what I am talking about in regards to the under 45 demographic in Canada:
https://pbs.twimg.com/media/CXZ-7-tVAAI_Kfu.png
Thanks for that. The cool thing about it to me is that the jump in indebtedness over the three time periods is actually much higher for 60-year-olds than for 30-year-olds... yes, 30-year-olds make up most of the total volume because that's the house-buying generation, but the 60-somethings are getting worser faster. Presumably these are the people getting big HELOCs to finance their fun... and maybe then complaining about kids today and their darn mortgages. :-)
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...since we've seemed to have moved from talk about the strength of the loonie to the robustness of RE....
what really worries me isn't the median indebtedness of Canadian households, (though that's troubling) but the the number of households that have mortgages far beyond their income level. Half a million households (11%) have mortgage balances that are at least 500% of their income. I can imagine some very plausible scenarios where this gets away from us; a spike in unemployment coupled with a modest drop in home prices.
http://www.cbc.ca/news/business/debt-yearend-1.3383632 (http://www.cbc.ca/news/business/debt-yearend-1.3383632)
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Am I happy about the current economic situation in Canada and the low loonie? = nope.
Am I particularly worried for my own personal situation? = nope.
- I'm highly employable.
- I have a current multi-year contract and I am working on a diversified side-gig.
- I spend relatively little and have significantly more expenses I can cut if I had to.
- I'm willing to work a retail job if I had to and I could get one within a week.
- I have a lot of $$ saved/invested
- I have a LOC [not home equity based] that I can live off for 2yrs
- I have a significant mortgage, but I am in an area of the country without a housing bubble concern.
- I have a GF with a steady Gov't job who I share living expenses with.
- I'm healthy.
The current situation has just made saving and investing seem even more sensible. I'm taking my savings to the next level this year and the fact that buying stuff from the USA is so expensive certainly doesn't make that hard to want to do.
Like Stasher I'm happy to dirt bag my way through the US and Mexico so travel costs are not an issue. I'll sleep in my truck or grab a $15/night camp site for my tent. I was just in the US on a trip..gas was $0.65/L, beer and food is cheap. Having to buy a new tire for my mountain bike was pricey, but as long as I'm not gratuitously buying gear the real impact of that is negligible.
My investments are well diversified so I'm not panicking. My FIRE plans are still on track.
Life is good. I'm going to enjoy everyday I have. :)
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Am I happy about the current economic situation in Canada and the low loonie? = nope.
Am I particularly worried for my own personal situation? = nope.
- I'm highly employable.
- I have a current multi-year contract and I am working on a diversified side-gig.
- I spend relatively little and have significantly more expenses I can cut if I had to.
- I'm willing to work a retail job if I had to and I could get one within a week.
- I have a lot of $$ saved/invested
- I have a LOC [not home equity based] that I can live off for 2yrs
- I have a significant mortgage, but I am in an area of the country without a housing bubble concern.
- I have a GF with a steady Gov't job who I share living expenses with.
- I'm healthy.
...
Life is good. I'm going to enjoy everyday I have. :)
Optimisim gun, I love it! Awesome outlook Retire-Canada.
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Optimisim gun, I love it! Awesome outlook Retire-Canada.
Thanks. Fear-Uncertainty-Doubt doesn't get you anywhere. ;)
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Am I happy about the current economic situation in Canada and the low loonie? = nope.
Am I particularly worried for my own personal situation? = nope.
- I'm highly employable.
- I have a current multi-year contract and I am working on a diversified side-gig.
- I spend relatively little and have significantly more expenses I can cut if I had to.
- I'm willing to work a retail job if I had to and I could get one within a week.
- I have a lot of $$ saved/invested
- I have a LOC [not home equity based] that I can live off for 2yrs
- I have a significant mortgage, but I am in an area of the country without a housing bubble concern.
- I have a GF with a steady Gov't job who I share living expenses with.
- I'm healthy.
...
Life is good. I'm going to enjoy everyday I have. :)
Optimisim gun, I love it! Awesome outlook Retire-Canada.
+1
I get nervous more now than ever in the past, but then I remember that it's because now I'm actually paying attention. I'm nervous now because if things get too bad it could delay my plans for FIRE (gasp!).... but honestly, it wouldn't be THAT bad. Certainly not worth fretting over. :)
Stable job
Low expenses
My only dependent has 4 legs
Good health
Multiple backup plans
Good stable tenants (for 2 out of 3 suites)
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My "sleep well at night" thoughts are this:
I own land (free and clear)
I can grow food on this land (getting better and better at it)
I can catch food from ocean by this land (shockingly easy and bountiful)
No debt (of any kind)
I have dear friends in Alberta with direct ties to the O&G industry - and I DO worry for them...big mortgage, young children...but the do call it a commodity CYCLE for a reason. It goes round and round...up AND down.
I know there was a small amount of "smugness" amongst some in Canada when we were not hit nearly as hard as the U.S. during the financial crisis...I do think there a chance that this could be our "reckoning"...of course, I hope I'm wrong.
I think RC takes the right approach in choosing to be OPTIMISTIC regarding his personal prospects. Chances are he will be just fine...but such optimism towards the country as a whole is tougher to conjure for me right now.
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Love it guys !!!
I buy into the rule of awesomeness that is Optimism, exactly like MMM did blog posts on way back near the beginning of his philosophy. It is the easiest part of what we do and guides my actions.
My checklist reads almost identical to Retire-Canada so not nervous for myself.
I am nervous for my friends that haven't prepared, for my family that hasn't prepared and those that will be affected by ignorance or lack of knowledge on how to prepare for the future.
Where the current economic situation hits me the most is my side hustle with the wife.
We own a couple of retail stores out east and as 2015 progressed we saw sales drop by 38% year to year. I don't see 2016 improving one bit at all and I am actually researching ways to close the businesses if must be. The only frustrating part of this is that it was my side income and with the drop in revenue I have stopped drawing wages from this business to preserve cash flow. This then has stopped me from allocating a high savings rate to speed up FIRE and also another possible strategy was to sell the businesses to get there faster but won't happen now in this market. The last thing that affects me is owning a rental property back out east, I rented for 1600/month when the oil&gas was rocking but now sits empty going on 4 months even with rental price dropped to 1100/month , the entire region has gone bust.
What do we do, well we prepare for the future by every small action in our daily lives knowing that when times are good we save even harder. Vigilance in the face of mounting odds and a positive attitude.
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Love it guys !!!
I buy into the rule of awesomeness that is Optimism, exactly like MMM did blog posts on way back near the beginning of his philosophy. It is the easiest part of what we do and guides my actions.
My checklist reads almost identical to Retire-Canada so not nervous for myself.
I am nervous for my friends that haven't prepared, for my family that hasn't prepared and those that will be affected by ignorance or lack of knowledge on how to prepare for the future.
Likewise. I feel like we are in a good position, but I worry about what will happen around me. I lived in California during when the subprime mortgage bubble popped, and stayed there through the 'great recession'. Then I moved to Canada and was shocked to learn that many of my peers seemed completely oblivious to what had happened just south of the boarder. I remember one saying "oh yeah, i remember hearing something about the US being in a recession."
What worries me now (about others) is that I see similar behaviour to what I saw in the US 2001-2007. Lots of talk about how real-estate is going to make people my age rich. Free use of HELOCs on home renovation projects 'guaranteed' to increase the value of the home. "Tapping equity." New cars bought on credit. Constant talk of 'starter homes' and 'flipping' and 'sweat equity'. Statistics showing that 11% of homeowners mortgages are more than 5x their household income.
To be fair there are some major differences. Thanks in part to the CMHC/SCHL there aren't any "NINA" (no income, no assets) loans flooding the system like there were in the US. But it is similar enough to me to be worrisome.