The average British Columbian homeowner is not going to pay off their mortgage by the time they retire.

“The average Canadian homeowner doesn’t think they’ll be mortgage-free until they’re 57 — two years longer than what they expected last year, a survey by CIBC suggests.
The survey also found that half of those surveyed said other debt, from credit cards to lines of credit, have increased and impeded their ability to pay off their mortgage more quickly. …
The report released Friday also found those in British Columbia expected to be the oldest at 59 when they have paid off their mortgage, followed by those in Manitoba and Saskatchewan at 58. …
Colette Delaney, executive vice-president of mortgage, lending, insurance and deposit products at CIBC, said that the longer someone has to hold a mortgage may mean the less savings they have for retirement.
“Being mortgage free sooner can help accelerate retirement savings, but carrying a mortgage into your late 50s can have the opposite effect and make it more challenging to reach your long term savings goals,” said Delaney.

– from ‘Canadian homeowners don’t think they’ll be mortgage-free until they’re 57′, Canadian Press, 5 Apr 2013

Let’s simply face it that the average British Columbian homeowner is not going to pay off their mortgage by the time they retire.
In a closely related sense, locals are overdependent on their RE holdings for their retirement funding, and are at high risk of their retirement plans being severely hobbled by coming RE price weakness.
– vreaa

40 responses to “The average British Columbian homeowner is not going to pay off their mortgage by the time they retire.

  1. Real Estate Tsunami

    Freedom 75. :)

    • I’ve been wondering about this. Has anyone seen any discussions on how this all might play out. Will people really be working 5 or 10 years longer because of RE changes, high cost of living and the various other economic woes those not in the upper class have? Will a lot of us work til we die or become too sick?

      How does people staying in the work force many years longer effect the job market?

      Sorry if this is kinda gloomy but it’s a realistic scenario but I haven’t come across any discussion of this.

    • Ralph Cramdown

      People will TRY to work 5 or 10 years longer, but it isn’t that simple. Unless she’s a superstar performer or protected by a union, an older employee is often first in line for layoffs and at the bottom of the hiring pile.

      At least poor, sick old people won’t be as predisposed to direct action as disaffected youth are, but it might still get a bit noisy: http://en.wikipedia.org/wiki/Cacerolazo
      I think there will be a lot of encouragement for children to take in their parents; multi-generational households will enjoy a resurgence. Bearish for the housing market, of course.

      • Real Estate Tsunami

        People through centuries used the work until they died.
        Pensions and retirement are a fairly new concept. And most people did not live past 65 anyway.
        Are we progressising backwards?

      • > People will TRY to work 5 or 10 years longer…

        and might be paid less, possibly voluntarily. That would be another destabilizing factor in a wobbly jobs market.

        I’ve lived a pretty modest life, am not counting on questionable RE equity to fund my retirement but also haven’t had much luck in investments – basically breaking even (minus the stress :( ). I’m better off than many, by the sounds of things. Still, I’m expecting I’ll have to work til at least 69-70 (which *completely* sucks). We’re in uncharted waters. This could be a big mess.

        > multi-generational households will enjoy a resurgence

        Hmmm. I hadn’t thought of that. For a few decades now, people started having families later. Some of their kids are having a tough time finding decent work so are moving back in with their parents after university. Maybe just when these kids get on their feet, the parents will “move in” with them.

  2. Real Estate Tsunami

    That’s why homeowners in their late 50s and early 60s should sell now, because prices will only go down in the next 5 years.
    Lock in the equity. If they still want to stay in RE they should downsize.
    I know this sounds simply to the posters on this blog, but there are a lot of naive home owners out there still thinking prices will go up forever.

    • From my experience a lot of naive city councils and their developer pals have the same naive belief.

  3. Real Estate Tsunami

    Not so long ago, predictions were made about a huge “wealth shift” from the boomers to their offsprings, as the boomers kicked the buckets en masse. Again, these predictions were made on the assumption that the prices of houses can only go up.
    Now it will be more like a “debt shift”, as the boomers are piling up on HELOCs and Reverse Mortgages.
    IMO, predictions based on demographics never “amounted to a hill of beans”, anyway.
    Nem, can you run the Casablanca clip, please.

  4. They’ll be lucky to have the HELOC paid off by 65 I figure.

  5. Not surprising, after all BC’s life expectancy is higher…

  6. I’m looking realistically at 75 ish to pay off my mtg

  7. “pay off their mortgage”

    I don’t understand this statement. Why would anyone want to “pay off” a mortgage?

    • Real Estate Tsunami

      Mortgage = Death Contract

    • “why pay off a mortgage?”

      hahaha

      Yes, we have crossed into another parallel universe, haven’t we?

    • Ralph Cramdown

      I don’t know whether YVR is serious about this, but I agree with it on face value. I’ve got enough liquid assets today to pay cash for a house. Assuming things in Canada are as bad or worse when I buy, I’ll be paying cash and immediately borrowing 80% on closing day. Not everyone may be in my position.

    • At today’s rates (with so much printing of money, currency devaluation, and likely higher inflationary soon), a mortgage makes huge sense if you think RE prices in your area is fair value. (I appreciate no one here will agree Van RE is fair value)

      Mortgages represent the cheapest form of money to borrow for most individuals. Dismissing debt completely is safe but not where the smart money is.

      • I’ll just add that when governments are counting on paying off their own debt by printing more money, and therefore diluting the real value of $, that it is safer to not bet against the government.

        What’s just happened in Japan is worth watching. The world’s 3rd largest economy is doubling the amount of money they have in the system. That will drive all sorts of rates lower across the world, including Canadian mortgage rates, Canadian stock dividends and more.

        Japanese money are prevalent in Brazil, Australia, Turkey and the US especially.

        The world’s biggest economies are playing Robin Hood, stealing from savers and rewarding borrowers including themselves.

        This is the overarching trend that is influencing every corner of finance today at every level.

      • Government paying off its debt? What kind of crack are you smoking?

  8. My folks have owned in South Surrey since the mid-70’s, mostly in just two locations, but in their empty nest years yo-yoed between downsizing and re-upsizing to various condos, townhouses, duplexes, etc. trying to ‘find the right fit’, and all of a sudden they find themselves at 65 still owing half the value of their home + recreation property to the bank. After almost 30 years of ownership in the BPOE and a number of boom markets, they have very little to show for it and dad will keep working until the debt is paid before considering retirement. Now they are talking of selling and renting, which I have encouraged them to do, but they would feel ashamed in their peer group to ‘stoop’ to that.

  9. “Are bankrupt seniors harbingers of things to come?”

    http://www.cbc.ca/news/canada/story/2012/06/22/f-bankrupt-seniors.html

    “Canadians over the age of 65 now have the highest insolvency and bankruptcy rates in the country, according to the latest family finances report by the Vanier Institute for the Family.
    Aging Canada

    The non-profit charity’s 2011/2012 report found that seniors were 17 times more likely to become insolvent in 2010 than they were just 20 years before.

    In that same period, the insolvency rate for people over 65 ballooned by 1,747 per cent.

    “It’s an extreme, but we can see it as the tip of the iceberg,” said Nora Spinks, CEO of the Vanier Institute, who added that a larger contingent of older baby boomers might soon be in the same financial position…”

  10. There are those out there who will feel it is better to make a final mortgage payment in old age than to pay rent until death. Even if it means not cashing in on their home equity by selling now (or last year) or having to take their children back with their families to make ends meet.

  11. Well, I can’t think of a single Financial Advisor who thinks senior citizens should carry major debt into retirement. The whole strategy is to live in a paid-off house – that’s the way you avoid paying rent.

    • Yes, true, agreed.

    • Real Estate Tsunami

      To live in a paid up house, that’s losing value, just to avoid paying rent, just sounds like a losing strategy to me.

      • A home losing value is not a certainty nor is it a constant. Losing money to rent is a certainty and a constant.

        The debate is the value we place in eventually not having to worry about this debate at all!

      • Well, back in the good ol’ days…the home was not an over-priced, over-leveraged Financial Instrument…it only rose by roughly the rate of inflation, if that. Therefore the strategy of paying off your house and living frugally in old age worked just fine and was dead simple.

        Can’t really do it anymore thanks to concerted efforts of the Central Bankers and various Financial “Innovators”………

      • “Losing money to rent is a certainty and a constant.”

        Losing money to interest payments is a certainty and constant. Losing money to insurance, property taxes, strata fees, and maintenance is also a certainty and a constant.

      • kabloona – That’s right, it’s getting harder and harder for regular folks. As Ralph Cramdown reminds us, GINI coefficients are rising – the rich are getting richer and the poor are getting poorer even though there is more money in the system than ever before.

        Meritocracy is slowly eroding. We are headed to a world ruled by plutocracy. This injustice is behind the Occupy movement and partly the Anonymous movement.

        This is why owning one’s home (if it is paid off or very lowly leveraged) is still the best way to ride out the storm until it passes despite other investments, with no utility value, offering better value. Speculation/flipping is a different matter all together.

        El Ninja – I agree, buying in today’s prices with high leverage is a poor decision in spite of low rates. Not necessarily a bad decision for someone to buy as their primary residence with little/no leverage. Arguable for a deep pocketed investor.

        Re: insurance, property tax, strata, maintenance, we’ll these can’t be ignored but they shouldn’t be put into a dollar-to-dollar comparison between renting Vs. owning. All sorts of folks don’t mind the extra carrying costs of ‘owning’ bigger cars than they need, over-curating gardens, collecting/storing fine wines, etc. To some, there is a sentimental value to property which they are willing to pay a premium for.

      • BLM: “This is why owning one’s home (if it is paid off or very lowly leveraged) is still the best way to ride out the storm until it passes despite other investments, with no utility value, offering better value. Speculation/flipping is a different matter all together.”

        Okay, so just to make this very clear to readers, BLM is recommending that it’s okay to ‘own’ (buy) a home in Vancouver provided you pay for it fully with cash or with a minimal mortgage.
        This, of course, excludes 90% of current buyers.

      • Vreaa – I would say more than 10% of buyers in the Vancouver core area have very deep pockets. No one can quantify but I would be comfortable in guessing that between 30%-40% of properties transacted since 2008’s bottom on the west side and downtown are of buyers who have more assets than liabilities and own more than one property.

        There are many who could pay off in full but choose to take out a mortgage for tax reasons and to take advantage of the record low rates. It’s also partly why so many houses are bought under company names.

        Beyond core Vancouver, the picture, I’m sure is very different. Even within core Vancouver, if you include existing homeowners, the picture is probably different.

      • If there is still any doubt as to the influence of foreign institutional, foreign government, and foreign private money that is flowing into Vancouver, take a look at this (and the report it links to):
        http://www.vancouversun.com/business/commercial-real-estate/Vancouver+commerical+real+estate+property/8132364/story.html

        The anecdotes from the commercial market should be weighted more heavily as there are fewer transactions with bigger price tags.

      • Please BLM! You must be kidding. If your idea of riding out a storm is losing more than 50% of your all-cash investment then you need to go back to investing school. I am not even trying to be insulting but you are better off with 30 year Treasuries for Gods sake (and that is saying something). Even a miniscule low yield investment is better for capital preservation than taking the risk of holding deflating assets during an economic storm. And depending on what you buy you retain liquidity which is far superior to being trapped with an asset where sales numbers have almost literally crashed already. I don’t know what you are thinking today but your idea is a recipe for serious long term losses if they cannot generate revenues.

      • Farmer
        1. A 50% permanent drop in Van RE prices for the next 30 years is only speculation

        2. 30-yr US Treasuries are at about 2.80%. It will only take a small bump in interest rates or inflation to put you in a REAL deep hole in 30-yr USTs.

        3. Let say someone buys a $500,000 condo full out but prices fall by 50% and stays there for the next 30 years. The buyer still saves roughly $1,000 a month in rent ($360,000 over 30 years, about the same return if invested in 30-yr USTs). Is it not better to own and take your earnings over the next 30 years and cost-average-diversify them into a mix of US Treasuries funds and stocks for growth, etc given they are in bubbles as spectacular as Van RE today? If no leverage is involved, what is the difference between Van RE today and the US bond market? Both bubbles, one’s more liquid and the other you can live in. Just depends on what the buyer values.

      • “No one can quantify but I would be comfortable in guessing that between 30%-40% of properties transacted since 2008′s bottom on the west side and downtown are of buyers who have more assets than liabilities and own more than one property” ~~ BLM
        ——————
        So having plenty of cash is an excuse for making bad decisions and buying into a bubble? I honestly don’t get your argument today. Sales decline, then prices fall. That is the basic formula and it has been playing out for months in Vancouver now. How is buying all-cash going to be garlic against the inevitability of price declines?

        Sorry but foolhardy is foolhardy whether you are rich or poor.

  12. There has been a very large change in BC since I was growing up. In my parents generation, everyone worked for one employer for life, was a homeowner with a paid for home, and had at least a modest private sector pension. Declining real incomes, the replacement of pensions with defined contribution RRSPs, and homeownership involving a massive debt load or not being an option at all is the new reality. The net worth of what used to be the working middle class has taken a massive hit and people are going into debt just to live their lives.
    Poverty amongst seniors was in decline for many years, we will now see bankruptcy and poverty rates soar as people forced to finance their own retirement without education or expertise will not have saved enough and won’t be in the right investments. The loss of security for many Canadians is a very sad economic reality in a country of such great natural wealth.

    • Ralph Cramdown

      It’s certainly not limited to BC or even Canada. After a halcyon period lasting roughly from the end of WWII to the early ’80s, labour’s share of GDP has been on a downward path with the benefits going to capital. With free trade, high capital mobility, low labour mobility, declining union membership and a somewhat apathetic population, I don’t see that changing. I think the 21st century, at current trends, will see increasing GINI coefficients (the rich will get richer, and the rest won’t).

      Elsewhere I commented on the Globe & Mail’s financial facelift column this weekend, featuring a Vancouver couple who are all-in in real estate, are getting an inheritance and are planning on buying more with it; they want to leave a legacy to their children. It’s interesting that several commenters felt that they should aim to die broke and let their children make their own way in the world. On the net, just about any long comment section eventually sports a few people complaining about government workers’ wages and benefits — society seems to have resigned itself to poor wages and crummy defined contribution pension plans, and wants to drag the last holdout sector down with it rather than asking why most other sectors have lost what they once had.

      • Words’OWisdom…

        [NoteToEd: Albeit, 'TechnicallySpeaking', the GoldenEra had pretty much enjoyed its final, convulsive MoneyShot Circa'72.]

  13. Downsizinf is not necessarily a good option for seniors. When you own your own home, you can defer maintenance and basically let the place fall down around your ears. Buy into a condo and Grandma is on the hook for large assessments which can be impossible for a fixed-income earner to handle. Granny is better of staying in the house and putting in a suite to generate some income.

  14. Pingback: “My folks find themselves at 65 still owing half the value of their home and recreation property to the bank. After almost 30 years of ownership in the BPOE and a number of boom markets, they have very little to show for it.” | Vancouver Real

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