Spot The Speculator #53 – Beth: 31; Single; Forestry Job; Condo in Alberta [bought at peak]; Home in BC [bought 2010]; “..thinking of expanding her home and maybe buying a cabin.”

“Beth is 31, single again and eager to chart a new financial course. Not long ago, she started a new job in the forest industry with higher pay, so her future’s looking bright.
She has a condo in Alberta that she bought at the peak of the province’s real estate boom in 2007 and that she rents out for near break-even. Last year, she bought a modest home in British Columbia.
“I have worked really hard to get where I am and my career is starting to take off,” says Beth. “I want to ensure my financial independence and make some smart moves with my money while I am still relatively footloose and fancy-free!”
She has two mortgages, lines of credit and other consumer debt that she wants to pay down.
“Should I aggressively pay down debt or put more money into my RRSPs and TFSA?” she asks. She wants to sell the Alberta condo but would likely lose money if she did so now. She’s also thinking of expanding her B.C. home and maybe – just maybe – buying a cabin or some land in the Cariboo-Chilcotin area of B.C.”

– from ‘Lots of real estate, lots of debt’, Dianne Maley, G&M, 2 Sep 2011

And from the comments below the same article:

“People seem to think debt is a bad thing. That’s old fashioned thinking and not necessarily true. A mortgage is in fact the cheapest source of capital you will ever find.” – Boom Boom Pow

“The only kind of debt worth having is for stuff that appreciates, like real estate.” – Holden McGoyne

“I don’t see the sense in selling the condo immediately. She said she will likely lose money on the sale so why not just keep renting it out and have the tenants pay down the mortgage and build up some equity?” – Katherine R.

In Canada, we have lived through a decade where taking on as much debt, buying as much RE as possible, and then doing nothing but waiting, has paid off handsomely.
Risk takers have been rewarded, the prudent have been punished.
That period has come to an end.
RE prices have stagnated or are dropping; Debt is becoming a liability rather than a tool.
We are ‘deleveraging’; a ‘virtuous’ cycle is turning ‘vicious’.
The majority of those who are sitting on overvalued properties haven’t yet gotten the news. Their hope for further easy gains clouds their judgement.
When prices begin to show substantial weakness, they will be faced with the stark reality, and will sell. That selling will be but one of the factors that causes the implosion of the speculative mania. Maybe Beth will decide to sell right now, at an aggressive low price, and maybe she’ll be lucky enough to get out; alternatively maybe she’ll end up with hordes of other sellers waiting hopefully for a second bus.
Beth, along with thousands of other apparently innocent civilians, is a RE speculator.
By the end of the bust, all speculative activity will have left the market.
– vreaa

10 responses to “Spot The Speculator #53 – Beth: 31; Single; Forestry Job; Condo in Alberta [bought at peak]; Home in BC [bought 2010]; “..thinking of expanding her home and maybe buying a cabin.”

  1. 4SlicesofCheese

    There are some good replies as well.

    “J. Michael
    Wow, that is amazing that much debt can be carried on such a modest income. I find it hard to believe. If this example is common, then it must be a sign of troubled waters ahead.”

    “It is scarey indeed. No wonder there’s so much need to keep interest rates low.
    Abuse Reported Report Abuse
    Katherine R”

    “I agree – she seems on very shaky ground indeed. I can’t believe she is thinking about a cabin and a reno with so much debt and a modest income after tax and payments.”

    I think you should have mentioned that she also has 37k in debt above her mortgages, that should be a red flag.

    Although she “only” has 1900 in credit card debt and 20k in line of credit, I would make an educated guess and assume she is supplementing her spending with her line of credit.

    • 4Slices -> Thanks for the comment.
      We highlighted the particular G&M comments above to show that there are still many folks who have no idea of what’s coming down the tracks. But there are actually more sensible comments than out-of-touch ones; this is a pattern we are noting increasingly in the MSM. There is an enlarging group of folks who understand the predicament. At some point that’ll reach critical mass and we’d expect to see it translate into market moves.

  2. These are the kind of people who are pushing the market higher – over-indebted local “investors”. It’s all based on “it’s different here” kind of thinking. That is, if they bothered to look south of the border. Or it’s just plain ignorance…

  3. “Footloose and fancy free” can change so quickly. RE, I would suggest, is treated as getting a pet when you’re young and single. Then lo and behold you meet someone, get married, move, have a baby and, oh, can’t keep the pet anymore, I’ll just get rid of it. A pet is relatively easy to get rid of, take it to the SPCA and give them a couple hundred bucks and you walk away free and clear. I wonder in a few years if there will be a SPRE, the Society for the Protection of Real Estate, where people will take their unwanted, sick and unloved properties.

  4. From what I’ve seen in my line of work, I would say this amount of debt for her income is quite typical. I have several clients who have even more debt, with slightly more income than her. It’s usually a combination of principal residence debt plus a rental property or two. Here in BC, it doesn’t seem uncommon for one person to have $400-$700k in combined mortgages on a salary of 40k-$60k per year. Though when I mentioned this to a friend of mine (who is a physician out east and whose partner is a pharmacist), he was absolutely flabbergasted at the levels of debt I was talking about-considering he worries about his $400k mortgage on a modest house with a family income that is likely more than $200k/year.

    • Your doctor friend is like me, naive in the ways of today’s speculators. When I was getting into the market, early 2007, I had no idea how people all around me were affording new cars, vacations, renos, condos, and the only mortgage that existed to me, at all, was 25 year fixed. Never heard of 0/40, I wouldn’t even believe you. Maybe from Guido’s mortgage shop. Cashback? For losers. Insurance? For the irresponsible. I thought our banks were solid, and prudent lenders.

      Of course, now the picture is much clearer, and everything makes sense.

  5. My pessimistic self this morning wants to think that most people’s goal in life is to become rentier and not to do something that they love. How sad.

    • Welcome to the generation brought up by the television where mimicry and consumerism triumph logic and independent thought. Fulfillment, is that a new scent Dior put out, like, ohmigod.

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