Canada Housing/Debt: Trust me, I'm a landlord.

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namaste friends: Sep 18, 2004; by Smythe

http://www.theglobeandmail.com/report-on-business/rob-commentary/rob-insight/parkinson/article24044160/

quote:

For years, the Harper government has hitched Canada�s economic fortunes to the willingness of Canadian consumer to spend. Why change now?

The budget tabled by Finance Minister Joe Oliver on Tuesday isn�t about a grand vision for Canada�s economic future, a long-term master plan for cashing in on the benefits of a hard-earned balanced budget by using that flexibility to build a new architecture for prosperity and growth. It�s about making sure the balanced budget itself is achieved (as promised, and by whatever means necessary), and laying out the battle ground for the fall election. It�s not about stimulating a stalled economy, but about stimulating the salivary glands for voters.

First, the balance. Yes, for the first time since 2008, the government is budgeting for a small surplus ($1.4-billion, which is little more than a rounding error on a $290-billion budget). To get there, it�s cutting its contingency fund to $1-billion from $3-billion, in an uncertain economy that arguably calls for more wiggle room rather than less; it cashed in the shares in General Motors it acquired as part of the auto bailout during the financial crisis, to the tune of another $2.1-billion; and it�s allowing the employment insurance account to move into a cumulative surplus for the next couple of years, which keeps another $1.8-billion in the government�s pocket this fiscal year.

But hey, it�s balanced. Don�t knock it.

To the extent that there is a vision here for using fiscal policy to promote economic health, it is aimed largely at Canadian consumers. Yes, the same segment of the economy that kept the country afloat through the recession and took the lead in the recovery, the same households that have become disturbingly overburdened with debt, are receiving the bulk of the budget�s incentives to keep their foot on the gas pedal.

The budget documents trumpet nearly $10-billion in �measures supporting jobs and growth� in the 2015-2016 budget year. Nearly 80 per cent of it comes in the form of tax cuts and credits for Canadian families. All other measures pale in comparison to the government�s tax breaks for households.

As one of my colleagues was saying on the eve of the budget (a fun game for you � guess which one!) , the Harper Conservatives have thrived for years on giving an increasingly suburban Canada what it craves � money in their pockets and the freedom to accumulate stuff with it.

No surprise, then, that the way this government chooses to stimulate jobs and growth in the shadow of 2015�s oil-soaked economic cloud is to hand money back to consumers, and trust them to spend it.

This is in lieu of the government�s own direct contribution to Canada�s economic activity. By its own calculation, Ottawa is spending $18-billion less in this budget than it otherwise would have without the series of discretionary spending cuts it has adopted since 2010. And constraint remained a prominent element in Mr. Oliver�s comments Tuesday.

What it means is that at a time when economic growth is on very shaky ground, the government itself is contributing remarkably little to it. The Bank of Canada last week estimated that government contributed nothing to real gross domestic product growth last year, and will chip in only about 0.2 percentage points to the estimated 1.9-per-cent growth this year. Consumption, on the other hand, will deliver more than half of the forecast growth for 2015.

Indeed, the public sector�s lack of visibility in Canada�s economic growth picture is a significant contributing factor in the Bank of Canada�s continued bargain-basement interest rates. As its restrained fiscal policy adds a bit more chill to a tepid economy, the central bank has continued to lean its own monetary policy in the other direction in order to stimulate with interest rates what Ottawa refuses to stimulate with fiscal investments. The result has been to add even more fuel to the consumer fire, as these long-term stimulative rates have encouraged record levels of borrowing by Canadian households.

The central bank has long flagged this as a significant risk to Canada�s economic stability. But as long as Ottawa persists in leaning its spending policy the other way, what choice does it have? So consumers continue to spend and carry hefty debts, and the government adds more fuel to the consumer to kick the day of reckoning in the consumer economy a little further down the road.

Meanwhile, the government�s zeal to maintain a balanced budget has the potential to further starve its growth contribution should its economic projections for this year prove optimistic. It hasn�t given itself a lot of wiggle room, should things not go as planned.

While the budget outlines several key risks, all to the downside, for its economic outlook for the current year (including the potential for high household debt to constrain consumer spending, as well as the danger of further declines in the oil price and weaker-than-expected global growth), it not only reduced the size of its contingency fund, but priced in an �adjustment for risk� of just 0.3 per cent in its assumption for total nominal GDP � the key number for predicting government revenues. Should any of the risks come to pass, the government may well be tempted to pull back spending to keep its promise intact.

This budget came with a title �Strong Leadership,� but in terms of delivering the growth the economy needs, it�s clear who the government is expecting to lead. It�s still relying on its voters to carry the spending ball, so it doesn�t have to.

You know, in a low growth, zirp your goal is to get industry to invest. Instead the tories are asking Canadian consumers, 155% levered assholes, to spend even more.

gently caress this loving country and gently caress all of you

# ? Apr 21, 2015 22:48

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# ? May 18, 2024 06:14

etalian: Mar 20, 2006

Cultural Imperial posted:

http://www.theglobeandmail.com/report-on-business/rob-commentary/rob-insight/parkinson/article24044160/

You know, in a low growth, zirp your goal is to get industry to invest. Instead the tories are asking Canadian consumers, 155% levered assholes, to spend even more.

gently caress this loving country and gently caress all of you

I like the article on how they sold all the government's GM preferred stock at big loss. I guess we now know it's just so they can do a US republican-esque tax cut to save the economy plan.

# ? Apr 21, 2015 23:01

Lexicon: Jul 29, 2003; I had a beer with Stephen Harper once and now I like him.

As rumoured, TFSAs are doubling to $10,000, retroactive to January 1st, 2015. No more auto-indexing though.

That strengthens the "rent and invest" side over "buy CONDOES!". Too bad most younger Canadians won't be smart enough to take advantage.

# ? Apr 21, 2015 23:13

Guest2553: Aug 3, 2012

Lexicon posted:

Too bad most younger Canadians won't be smart enough to take advantage.

Arguably bad policy, but I'm not above letting it benefit me.

# ? Apr 21, 2015 23:46

Lexicon: Jul 29, 2003; I had a beer with Stephen Harper once and now I like him.

Guest2553 posted:

Arguably bad policy, but I'm not above letting it benefit me.

It would be foolish not to. No one who advocates for higher tax rates sends in a cheque to the CRA for above and beyond what they personally owe.

It probably is bad policy on the whole, but the indexing removal stems the worst excesses of the possible hit to government revenue down the line.

# ? Apr 22, 2015 00:03

namaste friends: Sep 18, 2004; by Smythe

How many loving idiot home owners leveraged to their eyeballs in helocs are even going to begin to think about using up their tfsa cap? Bro that land rover payment won't leave me any money for my tfsa!!!!

# ? Apr 22, 2015 00:12

etalian: Mar 20, 2006

cheap credit and tax cuts is the recipe for economic growth!

# ? Apr 22, 2015 00:34

Mantle: May 15, 2004

My favourite comment on the budget I've seen so far:

quote:

Selling your couch to balance the household books is crackhead logic.

# ? Apr 22, 2015 00:37

namaste friends: Sep 18, 2004; by Smythe

Mantle posted:

My favourite comment on the budget I've seen so far:

Source please

# ? Apr 22, 2015 00:41

ductonius: Apr 9, 2007; I heard there's a cream for that...

Cultural Imperial posted:

How many loving idiot home owners leveraged to their eyeballs in helocs are even going to begin to think about using up their tfsa cap? Bro that land rover payment won't leave me any money for my tfsa!!!!

Lets not forget that a person making $30k would have to save over 50% of thier pre-tax income to max out thier RRSP and a 10k TFSA, while a person making $70k would only have to save 32%, and someone making $125k only has to save 25%.

The whole retirement savings scheme in this country is horribly regressive.

# ? Apr 22, 2015 00:43

Mantle: May 15, 2004

Cultural Imperial posted:

Source please

http://www.cbc.ca/1.3041628#vf-8736700001505

# ? Apr 22, 2015 00:53

PT6A: Jan 5, 2006; Public school teachers are callous dictators who won't lift a finger to stop children from peeing in my plane

ductonius posted:

Lets not forget that a person making $30k would have to save over 50% of thier pre-tax income to max out thier RRSP and a 10k TFSA, while a person making $70k would only have to save 32%, and someone making $125k only has to save 25%.

The whole retirement savings scheme in this country is horribly regressive.

Reality is horribly regressive, though. There's only so much you can do to change that. At least by convincing people who have the means to do so to save for their retirement, there's one old person who won't need government support down the road (when the system is going to be stretched pretty thin as it is). It's not amazing policy, but it's not a simple handout either.

# ? Apr 22, 2015 00:58

etalian: Mar 20, 2006

Mantle posted:

http://www.cbc.ca/1.3041628#vf-8736700001505

I guess a housing bubble is good way to keep everything affordable

quote:

"Canadians need a break. Their expenses are significant," Oliver told reporters during a press conference Tuesday. "It's important for us to make life as affordable as we can."

# ? Apr 22, 2015 01:00

Lexicon: Jul 29, 2003; I had a beer with Stephen Harper once and now I like him.

ductonius posted:

Lets not forget that a person making $30k would have to save over 50% of thier pre-tax income to max out thier RRSP and a 10k TFSA, while a person making $70k would only have to save 32%, and someone making $125k only has to save 25%.

The whole retirement savings scheme in this country is horribly regressive.

A person making $30k who contributes to, let alone maxes, an RRSP is an idiot.

# ? Apr 22, 2015 01:04

Risky Bisquick: Jan 18, 2008; PLEASE LET ME WRITE YOUR VICTIM IMPACT STATEMENT SO I CAN FURTHER DEMONSTRATE THE CALAMITY THAT IS OUR JUSTICE SYSTEM.; Buglord

ductonius posted:

Lets not forget that a person making $30k would have to save over 50% of thier pre-tax income to max out thier RRSP and a 10k TFSA, while a person making $70k would only have to save 32%, and someone making $125k only has to save 25%.

The whole retirement savings scheme in this country is horribly regressive.

The policy is stupid as hell, but please excuse me I suddenly have 9k cap room.

PT6A posted:

Reality is horribly regressive, though. There's only so much you can do to change that. At least by convincing people who have the means to do so to save for their retirement, there's one old person who won't need government support down the road (when the system is going to be stretched pretty thin as it is). It's not amazing policy, but it's not a simple handout either.

It's a handout to the rich. Once you get your tax rate down for your RRSP, if applicable, you dump savings into the TFSA for Index ETFs, or direct investing if you have enough time. These rich people will still be collecting OAS vacationing (living) in Belize.

# ? Apr 22, 2015 01:04

Risky Bisquick: Jan 18, 2008; PLEASE LET ME WRITE YOUR VICTIM IMPACT STATEMENT SO I CAN FURTHER DEMONSTRATE THE CALAMITY THAT IS OUR JUSTICE SYSTEM.; Buglord

Lexicon posted:

A person making $30k who contributes to, let alone maxes, an RRSP is an idiot.

It might make sense depending on employer contribution matching if they have any savings, this is capitalism after all.

# ? Apr 22, 2015 01:05

PT6A: Jan 5, 2006; Public school teachers are callous dictators who won't lift a finger to stop children from peeing in my plane

Lexicon posted:

A person making $30k who contributes to, let alone maxes, an RRSP is an idiot.

Why? If they don't mind living a very frugal life, why shouldn't they save for retirement?

EDIT: And by save, I mean invest. If you're young, and don't have many obligations and liabilities, it's the ideal time to pursue a higher-risk, growthy investing strategy.

PT6A fucked around with this message at 01:16 on Apr 22, 2015

# ? Apr 22, 2015 01:11

Jimmy Jerkboat: Apr 8, 2009

The policies in place make investing via a maxed out TFSA more difficult and less fruitful than throwing 25k-40k into a down payment on a condo for investment purposes; assuming you're in the 50k-70k income range and aren't completely incapable of fiscal responsibility.

You could save 10k every year and invest it; but holy gently caress watch out for mutual funds (big time fees), a fair chunk of bank or credit union financial planners (couple of good ponzi cases in BC recently), Investors Group-style money manager firms (big timer fees), probably a lot of individual FP's will gently caress you over (ponzis, shady high-return poo poo, fees for DIFFICULT WORK such as reading WSJ, or splooging on the stock pages to pick the big winners), and pretty much anything outside of time consuming self-directed trading.

Or you could throw all the cash in your high-interest(lol) savings account and RRSP (25k tax-free with 5 years to pay it back oh boy) toward a Vancouver condo with 2.75% interest on the loan and reap guaranteed* returns by renting it out, then sell it when you've seen enough capital appreciation because the condo market never goes down in the greatest place on earth.

# ? Apr 22, 2015 01:23

Saltin: Aug 20, 2003; Don't touch

PT6A posted:

Why? If they don't mind living a very frugal life, why shouldn't they save for retirement?

EDIT: And by save, I mean invest. If you're young, and don't have many obligations and liabilities, it's the ideal time to pursue a higher-risk, growthy investing strategy.

At the lowest marginal rate RRSP contributions are very ineffective. Assuming marginal rates continue to climb in the future someone who contributes to an RRSP today at the lowest marginal rate will be paying a higher marginal rate when they withdraw the money in the future.

RRSPs really only work well at the highest marginal rate(s), with the assumption you will be withdrawing at a lower marginal rate in the future. Just another way the well to do win.

Also, I gotta add $4500 to my TFSA tomorrow.

Jimmy Jerkboat posted:

You could save 10k every year and invest it; but holy gently caress watch out for mutual funds (big time fees), a fair chunk of bank or credit union financial planners (couple of good ponzi cases in BC recently), Investors Group-style money manager firms (big timer fees), probably a lot of individual FP's will gently caress you over (ponzis, shady high-return poo poo, fees for DIFFICULT WORK such as reading WSJ, or splooging on the stock pages to pick the big winners), and pretty much anything outside of time consuming self-directed trading.

It really isn't too much work to set up a portfolio of low MER index ETFs and just check once a year to make sure your allotments are balanced. There is plenty of good and productive info on that poo poo out there. The problem is people spend more time googling which TV or smartphone to buy than taking any sort of interest in their future security.

Saltin fucked around with this message at 01:29 on Apr 22, 2015

# ? Apr 22, 2015 01:24

Precambrian Video Games: Aug 19, 2002

PT6A posted:

Why? If they don't mind living a very frugal life, why shouldn't they save for retirement?

As we discussed several times before, there can be tax advantages to putting retirement savings in a TFSa vs an RRSP. Since RRSPs effectively defer your tax to when you withdraw the funds in your retirement, it's generally better to put money in them as long as you expect your retirement income to be lower than your current income. However, through some magic, RRSP withdrawals claw back various benefits like OAS and GIS (see here or google for dozens of other explanations), so they turn out not to be beneficial for low income earners unless they expect to be earning much higher incomes in the future.

Anyway TFSAs are a dumb handout to the rich so this just continues that assbackwards policy to a greater extreme. Nothing to be seen here.

Saltin posted:

At the lowest marginal rate RRSP contributions are very ineffective. Assuming marginal rates continue to climb in the future someone who contributes to an RRSP today at the lowest marginal rate will be paying a higher marginal rate when they withdraw the money in the future.

In the absence of clawed-back benefits, I don't thihink this is really true. All that really matters if if your effective tax rate is higher in retirement than it is now. A low income earner could conceivably have retirement income low enough that they barely crack the personal exemption, which should increase in the future regardless of what happens to marginal rates.

Precambrian Video Games fucked around with this message at 01:30 on Apr 22, 2015

# ? Apr 22, 2015 01:25

Vehementi: Jul 25, 2003; YOSPOS

RRSP still shields you from capital gains on everything for the duration, so even when your taxes are low, it's better than nothing unless you plan to withdraw at a significantly higher marginal rate, right?

# ? Apr 22, 2015 01:35

cowofwar: Jul 30, 2002; by Athanatos

Jimmy Jerkboat posted:

The policies in place make investing via a maxed out TFSA more difficult and less fruitful than throwing 25k-40k into a down payment on a condo for investment purposes; assuming you're in the 50k-70k income range and aren't completely incapable of fiscal responsibility.

You could save 10k every year and invest it; but holy gently caress watch out for mutual funds (big time fees), a fair chunk of bank or credit union financial planners (couple of good ponzi cases in BC recently), Investors Group-style money manager firms (big timer fees), probably a lot of individual FP's will gently caress you over (ponzis, shady high-return poo poo, fees for DIFFICULT WORK such as reading WSJ, or splooging on the stock pages to pick the big winners), and pretty much anything outside of time consuming self-directed trading.

Or you could throw all the cash in your high-interest(lol) savings account and RRSP (25k tax-free with 5 years to pay it back oh boy) toward a Vancouver condo with 2.75% interest on the loan and reap guaranteed* returns by renting it out, then sell it when you've seen enough capital appreciation because the condo market never goes down in the greatest place on earth.

I hope this is satire.

Vehementi posted:

RRSP still shields you from capital gains on everything for the duration, so even when your taxes are low, it's better than nothing unless you plan to withdraw at a significantly higher marginal rate, right?

1. TFSA
2. RRSP
3. Unregistered

# ? Apr 22, 2015 01:38

etalian: Mar 20, 2006

Vehementi posted:

RRSP still shields you from capital gains on everything for the duration, so even when your taxes are low, it's better than nothing unless you plan to withdraw at a significantly higher marginal rate, right?

It's similar to the USA IRA, you get a tax deduction for contributions but it gets taxed at the withdrawal side.

So basically a tax break now but you have to pay the tax man when you retire.

Also similar to a IRA you can raid it to make your full-proof home investment.

# ? Apr 22, 2015 01:39

Lexicon: Jul 29, 2003; I had a beer with Stephen Harper once and now I like him.

PT6A posted:

Why? If they don't mind living a very frugal life, why shouldn't they save for retirement?

EDIT: And by save, I mean invest. If you're young, and don't have many obligations and liabilities, it's the ideal time to pursue a higher-risk, growthy investing strategy.

If your contribution doesn't generate substantial tax savings today, you've sold out future taxation of your RRSP account 'too cheaply'.

By all means save for retirement - more power to you if you can do it at $30k income. But the RRSP is the wrong vehicle at that income level. Better to use TFSA.

# ? Apr 22, 2015 01:39

Jimmy Jerkboat: Apr 8, 2009

Saltin posted:

It really isn't too much work to set up a portfolio of low MER index ETFs and just check once a year to make sure your allotments are balanced. There is plenty of good and productive info on that poo poo out there. The problem is people spend more time googling which TV or smartphone to buy than taking any sort of interest in their future security.

Yeah that's exactly to-the-letter what I did, and averaged 10% since inception (2.5 years ago but w/e); however, that 10% would have been a *little* sweeter had I been able to borrow 500K to bolster my actual returns.

# ? Apr 22, 2015 01:48

etalian: Mar 20, 2006

Saltin posted:

It really isn't too much work to set up a portfolio of low MER index ETFs and just check once a year to make sure your allotments are balanced. There is plenty of good and productive info on that poo poo out there. The problem is people spend more time googling which TV or smartphone to buy than taking any sort of interest in their future security.

Alternatively just be lazy and invest in a vanguard retirement fund instead of agonizing over piles of different stocks.

Vanguard rocks.

# ? Apr 22, 2015 02:11

Risky Bisquick: Jan 18, 2008; PLEASE LET ME WRITE YOUR VICTIM IMPACT STATEMENT SO I CAN FURTHER DEMONSTRATE THE CALAMITY THAT IS OUR JUSTICE SYSTEM.; Buglord

Jimmy Jerkboat posted:

Yeah that's exactly to-the-letter what I did, and averaged 10% since inception (2.5 years ago but w/e); however, that 10% would have been a *little* sweeter had I been able to borrow 500K to bolster my actual returns.

You sound like you frequent casinos

# ? Apr 22, 2015 02:18

Baronjutter: Dec 31, 2007; "Tiny Trains"

I have a lot of faith in the long-term growth of my e-series funds but I'd feel pretty uneasy buying them "on margin". Although I'd feel less worried doing that than a loving house, specially if the government bent over backwards to subsidize the risk on my investments and let me deduct parts of it from my taxes.

# ? Apr 22, 2015 02:35

Jimmy Jerkboat: Apr 8, 2009

Baronjutter posted:

I have a lot of faith in the long-term growth of my e-series funds but I'd feel pretty uneasy buying them "on margin". Although I'd feel less worried doing that than a loving house, specially if the government bent over backwards to subsidize the risk on my investments and let me deduct parts of it from my taxes.

Yeah right, it's almost like attempting to capitalize on loans with currently low interest rates for investment purposes is irresponsible. Could you imagine if a crown corporation had it's mandate expanded to back-stop banks or brokerages issuing such loans, and subsidies similar to those offered for real estate were offered for taking them on?

# ? Apr 22, 2015 03:03

Baronjutter: Dec 31, 2007; "Tiny Trains"

Jimmy Jerkboat posted:

Yeah right, it's almost like attempting to capitalize on loans with currently low interest rates for investment purposes is irresponsible. Could you imagine if a crown corporation had it's mandate expanded to back-stop banks or brokerages issuing such loans, and subsidies similar to those offered for real estate were offered for taking them on?

Sounds like you don't think working canadians deserve a home.

Also, without the CMHC and all the direct and indirect subsidies for home ownership, would our actual percentage of home ownership be THAT much lower? Are the subsidies actually "helping" more people own a home, or mostly just bloating the price up and up so more people think we need the government to "do something" about it (ie make debt cheaper and easier).

Like if there are 90 houses and 100 people who want a house, but no subsidies, only the people who can afford the houses will buy and the prices will reflect the available money those 100 people have to buy those houses, with a minimum being the cost to build the houses. But give those same 90 people a nearly bottomless pit of debt and they just end up bidding against each other desperately worried they'll be one of the 10 people that can't afford the houses.

Has there been any actual analysis on the subject? If all the handouts are doing are jacking the prices up, is it really "helping" people fulfill the dream of ownership? If those subsidies and insanely low interest rates were not there wouldn't the prices of houses just come down and everyone (except people already massively in debt depending on rising home equity) be far better off? Perhaps slightly less people would own, but everyone would be in far less debt. Also we as a society obviously need to re-look at the idea that home ownership is a universal social good above that or even education, healthcare, or infrastructure.

# ? Apr 22, 2015 03:17

etalian: Mar 20, 2006

Things like the CHMC and other handouts to home ownership distort the market/encourage bubbles.

A sane housing policy would focus on minimal price appreciation and affordable rents aka the way Germany does things.

# ? Apr 22, 2015 03:22

namaste friends: Sep 18, 2004; by Smythe

rentiers complaining about their hard lives itt :qq:

http://www.reddit.com/r/vancouver/comments/33dpza/nightmare_tenants_how_can_we_evict/

:qq:

# ? Apr 22, 2015 04:09

etalian: Mar 20, 2006

Cultural Imperial posted:

rentiers complaining about their hard lives itt

http://www.reddit.com/r/vancouver/comments/33dpza/nightmare_tenants_how_can_we_evict/

lolling over landlords who don't adequately screen their tenants.

# ? Apr 22, 2015 04:30

Baronjutter: Dec 31, 2007; "Tiny Trains"

I like how one of the insults they give their tenants is that they are "low income". Bitch, you are the one choosing who the rent to. If you think you are renting to "low income" scum then you've chosen to be a slumlord.

# ? Apr 22, 2015 05:13

namaste friends: Sep 18, 2004; by Smythe

http://business.financialpost.com/p..._source=twitter

quote:

Canadians buying (overpriced) houses this spring with little money down, now face an additional burden with the recent announcement by CMHC � quickly followed by Genworth � that mortgage insurance will rise in price come June 1 of this year. Remember, this is the (bizarre) coverage that most homebuyers must pay for, which protects and indemnifies the lender in the event they (the homeowner) defaults.

Absurdly, this insurance stands in contrast to every other policy known to mankind, where the insurance premiums you pay are meant to protect you and not the payee. In contrast, with mortgage insurance you pay the premiums now when you buy the house and then in the event something horrible (financially) happens in your life, your banker won�t have to share in your misery.

Pity the high ratio mortgagor � a euphemism for buyers with very small down payments � who must now spend an additional 3.6% of the amount borrowed if they are only putting down 5% of the value of the house. And, the 3.6% insurance premium assumes a traditional form of down payment. For the non-traditional homebuyers, the premium rate is 3.85%. This, of course, is in addition to closing costs, land transfer taxes, moving expenses. Be prepared to spend.

But what really alarms me is what happens to these high ratio mortgage buyers and their spending after they have finally closed the deal and moved into their dream house. To be honest, I�m not sure they realize what a �risk pool� they have stepped into. Let�s look at the numbers.

The table below tells a scary tale. It is based on my analyses of Statistics Canada�s report on Survey of Household Spending. The data are somewhat stale � and worth monitoring very closely, if it were up to me � but based on anecdotal evidence the numbers are even worse today. Either way, here is what these sorts of numbers are saying very loud and clearly.

quote:

Where does the money go? Look at the first column. The 3.7 million Canadian home owning households without a mortgage � lucky them � have a disposable income (after income taxes and transfers) of $57,000 per year. They spend approximately 15% of their disposable income on shelter. Obviously, they don�t have a mortgage, so they don�t have to make any mortgage payments. But they still have to spend money maintaining and sustaining the house. They �burnt� the mortgage long ago, but the bills do keep coming. Again, they spend 15% on housing and approximately 18% on transportation, 13.4% on food and 7.5% on recreation. No surprises really, or anything very interesting quite yet. But, here is the good news. Households without any mortgage payments to make actually save 14.7% of their disposable income, which is actually higher than the national average. Indeed, perhaps this is the reason so many Canadians look forward to the day they can �burn� their mortgage documents (perhaps at age 75, at this rate.)

Now look at second column, which represents the entire group of 4.9 million Canadian home owning households with (any) mortgage debt. They actually happen to have a higher disposable income of $73,700 compared to those in the first column, perhaps because they are younger and/or still working. Interestingly, they don�t appear to spend any less percentage wise on transportation, food and recreation. Yes, they obviously spend much more on shelter, approximately 30% of disposable income because they do have a mortgage after all. But even those households with mortgages still manage to eke out a savings rate of 3.5% of disposable income. Not great, but positive and closer to the national average. (Math point to remember: X% of disposable income is less than X% of gross pre tax income.)

Now, if I didn�t know better than to be deceived by simple averages, I would (erroneously) conclude that Canadians would be OK. After all, even those with mortgage debt are still managing to sock away money for retirement and/or a rainy day. They are a prudent bunch.

But as we all know, you can drown in a pool with an average depth of a foot. Analogously, let�s take a close look at the Canadian families who live in the deep-end of the risk pool.

Now look at the third and final column in the table; the one I believe is the scary one. This summarizes the spending life of the 1.8 million Canadian households who have a mortgage liability ratio (MLR) larger than 20% of disposable income. Recall, this implies that they are spending at least 20% of their after-tax income to cover the mortgage (only). On a pre-tax basis this number is higher and this figure doesn�t include maintenance, property taxes, heating or utility bills and all the other things one needs to avoid freezing in the winter or melting in the summer. The 20% of disposable income (only) goes to keep the bank at bay.

Oddly enough or perhaps by force of habit, these 1.8 million households continue to spend a similar fraction of their disposable income � compared to their less leveraged counterparts � on food, recreation and transportation. They long for the house and need to furnish it as well as keeping up with the local Joneses.

Alas, with over 20% of disposable income going to the bank, what gives in the family budget? You guessed it, savings. Whether it be for retirement or even an emergency, there is no money left at the end of the month. They don�t save.

Well, actually, it�s worse.

These 1.8 million households are taking a (1.) highly leveraged bet on the continued appreciation of housing, and (2.) aren�t willing to reduce their discretionary consumption to account for the new risks on their balance sheets. Look carefully, they are actually saving -13% (dissaving 13 per cent) of their disposable income.

How exactly do you dissave 13% of anything? Well, by foolishly buying things on credit cards, perhaps refinancing their mortgage every few years and spending some home equity, or perhaps other non-traditional (i.e. off-balance sheet) methods of borrowing. Anecdotally, again, my understanding is that parents and family members are yet another creditor of the high ratio mortgagor. Their home is the nest egg.

Yes, �but Cassandra� I am quickly reminded by every bullish realtor and agent in town, �the pricey house is their big savings.� After all, the promoters assert with confidence, if housing continues its steady march to the clouds we will all retire rich. �Why bother with any other forms of saving?� they ask.

Well, if you work your way backwards, the amount by which housing prices would have to appreciate over the next 10 to 15 years to justify negative savings rates � and still leave a decent liquid nest egg for retirement � is staggering. Personally, I can�t get the math to work out even in the shallow (i.e. small mortgage) end of the risk pool, let alone the deep (i.e. big mortgage) end. And, worst case scenario, if real estate disappoints and/or interest rates swell, just when it comes time to renew your mortgage in three to five years, well, I guess these 1.8 million Canadian families will learn what it�s like to run their house like a hedge fund.

Moshe A. Milevsky is a professor at the Schulich School of Business at York University, and author of the recently published book: King William�s Tontine: Why the Retirement Annuity of the Future Should Resemble Its Past, Cambridge University Press (2015.)

HOLY poo poo MOTHERFUCKERS THAT'S SOME FUCKIN MEGA RICH HATIN

# ? Apr 22, 2015 05:48

B33rChiller: Aug 18, 2011

Baronjutter posted:

If all the handouts are doing are jacking the prices up, is it really "helping" people fulfill the dream of ownership?

Absolutely. We call these people developers, real-estate agents and mortgage brokers.

# ? Apr 22, 2015 06:02

Vehementi: Jul 25, 2003; YOSPOS

cowofwar posted:

1. TFSA
2. RRSP
3. Unregistered

Yeah, I said better than nothing (unregistered).

etalian posted:

It's similar to the USA IRA, you get a tax deduction for contributions but it gets taxed at the withdrawal side.

So basically a tax break now but you have to pay the tax man when you retire.

Right, but you also get a benefit that all the capital gains are untaxed. It's not just "you pay the taxes later but otherwise equivalent to unregistered". So ignoring the old age income stuff I'm not on top of, it's a mistake to say "oh I have low income so I'll keep things in a taxable account instead of RRSP".

# ? Apr 22, 2015 06:17

namaste friends: Sep 18, 2004; by Smythe

hey jumpingmanjim I've got some bad news

http://www.economist.com/blogs/freeexchange/2015/04/australias-jobs-report

# ? Apr 22, 2015 06:19

I would blow Dane Cook: Dec 26, 2008

Cultural Imperial posted:

hey jumpingmanjim I've got some bad news

http://www.economist.com/blogs/freeexchange/2015/04/australias-jobs-report

ABS figures are a bit iffy, i'm not willing to concede 6.4 to 6.1 % unemployment means anything. On the other hand, auction clearance rates will be down in Sydney this weekend due to widespread flooding :getin:

# ? Apr 22, 2015 10:06

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# ? May 18, 2024 06:14

MarquisDeSade: Jun 25, 2005; Grimey Drawer

Cultural Imperial posted:

http://business.financialpost.com/p..._source=twitter

HOLY poo poo MOTHERFUCKERS THAT'S SOME FUCKIN MEGA RICH HATIN

I had this guy as my personal finance professor about a decade ago. Even then he was telling our class that buying a home wasn't a good investment and the only reason he finally bought one was because it would stop his wife from nagging him about it.

# ? Apr 22, 2015 12:54

The Something Awful Forums > Discussion > Debate & Discussion > Canada Housing/Debt: Trust me, I'm a landlord.

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