This from ‘anonymous’, via e-mail to VREAA, 16 Apr 2011 -“On the bus-ride home today, just listened to a mid-late 30s office type guy talking to some ladies about how he and his s/o put an offer in on a Coquitlam condo last night. “We’re stretching it on the cost”, he says, “we’ve looked at the budget”, “we can do it, we can do it,” he boasts, “but we’re gonna have to cut pretty much all the frivolous spending” …(Okay, so interest rates not on the radar, or did he factor this in ?). Then the conversation continues, “I just don’t know how anyone can make money on a house these days, ..” Then goes on to list every tax, fee, and expense he can think of…HST, etc.”
[Note to 30's guy: The house is for living in, not making money on. -ed.]
Ah yes, “frivolous spending”. This is my favourite part about all of this.
Considering that we are a consumption based economy having people NOT spend and consume is going to be a serious problem (let’s stay away from the “is this even sustainable” for the moment).
But it fits in well with what one of these big bank economists said last year (paraphrasing here): People won’t default on their houses, they will just cut out other expenses. So there won’t be a housing correction because of this.
How that guy ever got an Economics degree is way beyond me, but it so well described why we are that deep in the smelly stuff and are still sinking.
People won’t default, they will just stop going to restaurants. So we will all be fine except the guys who own restaurants….Those guys are screwed! and the guys who sell restaurant guys cars… and the guys who sell cars guys kids piano lessons… and the guys who installs piano teachers new kitchens. Those guys are screwed! For the rest of us this will end swimmingly;-)
Exactly.
How a bank can hire a hack like that is a bit beyond me.
I guess wilful ignorance.
US anecdote at CR: “All the appreciation we’ve gained in the last 15 years, it’s gone.” http://www.calculatedriskblog.com/2011/04/quote-of-day-15-years-of-house-price.html
They should have invested in Vancouver. :-/
While it’s not good to just throw money around, some of that “frivolous spending” is called “life” and “being young.”
I feel for all these Vancouverites who will be eating mac and cheese and keeping the heat turned way down for the next ten years because they “stretched” on the mortgage.
People just do not believe (or don’t know) that interest rates ARE going up. They have not sat down and done the calculations. I think there are going to be a lot of people crying to their brokers and banks “But but you never told me that my payments could go up 50%/100%!!! Why didn’t you tell me?” This is exactly what happened in the US-people just got a letter one day from the bank that next month, their teaser rate is expired, and the mortgage payment is now much higher.
I was talking to a guy I know last week, who has about $700k in mortgage debt (rental properties) at a variable rate of 2.85%. I’ve told him time and time again that rates are going up. I really don’t think he has a clue, he has this attitude that whatever happens, he will be ok. But I know for a fact that he has not sat down and done the calculations. He just carries on lalala….life is good-I have paper equity!
Well most people who did the calculation sees the rates would just go up a few hundred per month when it goes from 3% to 5%. That’s no problem because after 5 years we will get salary increases, more income, etc. At worst we will just cut down on some cable and cellphone bills, maybe save some on banking fees and cut out dining out a few times a month. Seriously, that’s how most people think.
As for frivolous spending, I think it will be bad for a lot of small local businesses. However we as a society do spend a lot of $$ on really things of no value, so cutting down on frivolous spending might not be too bad. I mean, dog day spa? Seriously? Dog spa??
Gee, when I do that calculation on a $700k mortgage, (35 year) the payment goes from $2693 to $3532. That’s a tiny bit more than a few hundred a month! I don’t think my dude with the rental properties could suddenly raise rent by $900 a month to meet the mortgage.
This is why I know this bubble will pop….it’s all in the numbers…
check out this article in slate that details the coming demise of all that chinese money http://www.slate.com/id/2291271/
I was talking to my mom the other night…she works in data processing for CIBC…it was an interesting conversation. She was telling me about how the number of NSF cheques being processed was increasing. I asked her what she meant…I asked compared to say five years ago, would she say there are more now as a percentage of the total used. She said that as a percentage of the total used, the actual volume of NSF cheques being processed is the same as five years ago. But what has changed is that instead of these cheques being for big ticket items, they are for everyday things like groceries, hydro bills, and mortgages.
Then she told me how the neighbour just sold his place for 1.9 million…bought five years ago for 500k.
The olympics didn’t help the bubble either with speculators flocking one last time to overload themselves with debt in the Vancity RE market. The average home now in Van is nearly 40% higher than the second highest avg RE market in Canada (Toronto). I feel sorry for all the wide-eyed young families buying homes at these prices. Housing will once again become a place to live, not an investment. This is part of a much larger economic crisis happening world wide. I can feel it. I’m buying gold and silver, when the bubble pops I intend to buy a (small) home cash with no mortgage. To all the rest: good luck and all the best.