“I know three ‘middle class’ families that can’t afford gas. They all live in million dollar houses.”

Posted on 22 January 2013 | 41 Comments

“I know three ‘middle class’ families that can’t afford gas. Two of them have put their cars away and another said quite frankly that they can’t afford gas.
They all live in million dollar houses. One is even trying to sell their 1.8 million dollar house. No job loss, no divorce, no changes – just too much debt.”
– Anonymous at whispersfromtheedgeoftherainforest 21 Jan 2013 10:09am

This entry was posted in 08. Overextended Buyers and tagged , , , , , , , , . Bookmark the permalink.

41 responses to ““I know three ‘middle class’ families that can’t afford gas. They all live in million dollar houses.””

  1. bubbly | 22 January 2013 at 5:23 pm | Reply

    This is the weight that will pop the bubble. Interest rates do not need to change.

  2. rp1 | 22 January 2013 at 5:58 pm | Reply

    Throw it on the HELOC. Debt payments? Throw those on the HELOC too. Pay HELOC with HELOC. It can last quite a while.

  3. Real Estate | 22 January 2013 at 6:27 pm | Reply

    Looks like they have gone all in, including gas $$$ into RE. It was a great strategy up until a few minutes ago…

  4. Cyril Tourneur | 22 January 2013 at 7:09 pm | Reply

    This is exactly what happens when the average household earning $70k buys an average home worth $700k. How do you even pay the mortgage, let alone the gas for the car?

  5. van guy | 22 January 2013 at 7:38 pm | Reply

    This story sounds not real or they’re really bad with their finances. Simple solution, sell now and buy a cheaper house!!!

    • CanAmerican | 22 January 2013 at 8:03 pm | Reply

      It sounds totally real to me. It’s what happens when people stretch beyond belief to get buy-in before they get priced out forever. Your deduction is quite correct however, it is totally bad finances and cannot last long term.

      • UBCghettodweller | 22 January 2013 at 11:19 pm |

        Haven’t they just been priced out of other things in life now?

      • CanAmerican | 23 January 2013 at 8:56 am |

        I would say their excessive spending precluded other choices. No different than someone running up other debt such as credit card or other forms of financial mismanagement that limit choice. Only difference is the perverse belief that any spending on a home is “good debt”.

      • UBCghettodweller | 23 January 2013 at 9:09 am |

        Illiquidity and debt are their own prisons.

    • Real Estate Tsunami | 22 January 2013 at 10:29 pm | Reply

      Why would you sell in Vancouver where the house prices can only go up,
      cuz of the “fundamentals”.
      Just keep on paying your credit with new credit.
      What works for the good old US of A should work for the average schmoe.

  6. renters rule | 22 January 2013 at 7:43 pm | Reply

    so many are so financially illiterate… that they don’t know they are in over their heads, until they are drowning in their monthly CF problems….. sad but true! This generation NEEDS this correction… to learn a thing or two about finances…..and personal accountability (this 2011 Stanley Cup rioters)….

    • Groundhog | 22 January 2013 at 7:51 pm | Reply

      The sad part is they probably think they’re making a wise move by sacrificing their wants/even needs for the sake of a house that they think will be the road to financial freedom.

  7. renters rule | 22 January 2013 at 7:44 pm | Reply

    oops, meant “think” SC rioters..

  8. Timmeh | 22 January 2013 at 8:20 pm | Reply

    Recency bias strikes again

  9. Bo Xilai | 22 January 2013 at 9:25 pm | Reply

    These “middle class” families are nillionaires… Show off like millionaires with sweet F__k all in the bank.

  10. Good to be out | 22 January 2013 at 9:36 pm | Reply

    This story is no surprise at all and I expect to see a lot more of this in the months and years to come. This is what happens when people buy with the assumption that prices only go up. Then when they don’t things can crash quickly, especially if you bought recently or have little or no equity when prices start to revert. In this case the “external” factor is nothing more than creeping inflation.

  11. Farmer | 22 January 2013 at 10:09 pm | Reply

    So predictable that it was not even speculation on our parts to be sounding off alarms two years ago when Vancouver debt/income ratios were already hitting record highs.

    The irresponsibility on the part of the local lending institutions and the foolish sounding economists who work for them cannot be understated. They knew exactly what they were doing while they treated the public to a steady stream of encouragement to keep borrowing while disposable income was going up in smoke.

    One day we should review the best of remarks from Credit Union One just for starters and feature that bright fellow who acts as spokeman (he has an upcoming date to speak at UBC I hear…anyone attending?).

    I know I have said this before but I will repeat it for anyone who never read the remark. The banks ate the economy. They actively worked to take the lions share of national income on their own behalf without regard for the rest of the businesses that live here while the retail and consumption side has been sacrificed as an outcome

    That hurts everyone. That cuts into government bottom line revenues and it means the unemployment numbers will be rising as the correction progresses and equity withers.

    What a great success.

    • space889 | 23 January 2013 at 1:58 pm | Reply

      isn’t that their job? make as much $$ as possible for their shareholders and off course management. I don’t think the concept of conscience or social good exists in capitalism or free market.

      • Farmer | 23 January 2013 at 10:44 pm |

        When you have an economy that is almost completely dominated by 5 big banks they do indeed have a greater responsibility to behave in a way that takes the interests of both the general public and government into account. Particularly when those actions look to be jeopardizing future tax revenue streams and putting deficit reduction targets in peril.

        The dominance of the banks mean that they have an effective franchise and their corporate activities can have a significant impact on national economic affairs. As such they cannot be seen to be operating strictly on behalf of shareholders and in their own interests where those activities have a major impact on other aspects of spending within the domestic economy.

        Furthermore, if disposable income is impacted too severely there is a flow through to other business who may curtail reinvestment and expansion plans which can bring further harm to employment numbers. This applies most specifically to those who are not export oriented but are exclusively oriented to serving domestic demand.

        I like to point out how consumption and employment are being negatively affected by excessive lending in an easy credit environment but as we have already seen the impacts are far broader, even affecting employment mobility, the birthrate and savings for retirement.

        This is why I have been so much in favour of the policies designed to cool off housing despite the downside risks that will accompany the chilling effects of regulation on housing consumption. Better to rip the bandaid off now than risk losing a whole limb further down the road or suffering a systemic crisis.

  12. Brian | 22 January 2013 at 10:38 pm | Reply

    And how many need premium gas to fill up that luxury car of theirs? You wouldn’t borrow money to play in the stock market (risk of going down), why would you borrow to buy a 50-100k car that WILL go down in value. People never cease to amaze me in this city. When I was in the US, we talked about Americans being in over their heads with debt. I can tell you it’s much worse here and Canadians are just as dumb if not dumber than Americans.

    • rp1 | 22 January 2013 at 11:52 pm | Reply

      Canadians are clearly dumber. Having just watched the American disaster, we chose to do the exact same thing. And we crow about it. How arrogant can you be? You can’t even call it bravado because there isn’t much of a question as to what will happen, only when.

  13. Real Estate Tsunami | 22 January 2013 at 10:41 pm | Reply

    Farmer,
    You’re talking about Boris Pasternak.
    Dr. Zhivago. Great book and even greater movie.
    I think Boris is a “sleeper” left over from the KGB days.
    I heard that Putin will recall him soon, together with Bob Rennie and Tsur Sommerville.

    • Farmer | 22 January 2013 at 11:19 pm | Reply

      I think you have the makings of a very scary movie. Plenty of intrigue with a dash of deception and betrayal thrown in. But it will be “B” rated. The public wants to believe in fairy tales. They would never fall for anything touching on the truth!

  14. Realtor behavior | 23 January 2013 at 12:01 am | Reply

    Asians are very bullish when considering owning their properties, which means not just an investment, but also their sanctuaries. But until they really stepped their feet onto the N. American market, they can never have known what would owning here means! When you own a property in the Asian countries, you really own it, even there is a time limit stipulated; however, when you own a property in N. America, you also carry a puddle of debt, aka carrying costs when you own. I’ve owned in Asia, what you need to pay was like $100-200/mth for all the management fees and tax included. That’s it! Why? Asian properties are concrete, won’t have so much problems until over 20-ish years down the road, here in N. America only 2-5-10 and all leaking, plumbing, siding, roof, insulation…. problems. Not only needless to pay heat or water to maintain an empty property there, nobody would even vandalize or ransack your property when you’re away. No need of insurance for identity theft, by common sense, no court will nail such a scam on the property owner but the financial institution who was so derelict to give out money w/o even care to check who’s the scammer which generally are inside jobs. No need of extra-insurance as the concrete frame, instead of concrete sheets are prefab concrete slabs, so really few people will purchase insurance which can only be bonuses to the banks unless you carry a mortgage. What can the insurance company compensate you when you are out thousands for years after a fire, when you can actually renovate your home with that unpaid insurance money and replace your old TV, not to mention care is what you need to prevent a fire. I once consider buying an extremely low-price apartment around the area I am living but quite a bit far from the commute, but found out that with mortgage aside, I got to pay as much as the rent I am paying for my current apartment with the high auto-insurance (as I have one accident) included. Of course, I stay put!

  15. The Bookmaker | 23 January 2013 at 12:14 am | Reply

    I own a duplex with no mortgage in North Van and am praying the market tanks. I have children that I would like to be able to live closish to me ,if they eventually don’t hate me too much obviously! We earn over 250k per annum and live in a duplex, anywhere else, almost in the world, and we live in a mansion.
    Only when the gap between our 900k place and a decent upgrade is around 500k more debt, is when we MAY move. The debt at the moment to move would be a million and for what? Similar sized detached house in similar nice area with no view. Why bother, where’s the increase in quality of life and reduction in stress in that scenario …..!!
    Are we the only people who own outright but would love the market to tank for the greater good?

  16. Burnabonian | 23 January 2013 at 6:17 am | Reply

    The elusive Discretionary Seller, caught in the wild.

    $8,000 family net income per month, $6,500 mortgage payment. Pay the taxes (and buy Christmas gifts) out of the HELOC, live on elbow macaroni and tomatoes, and wait patiently for a few years for “the market” to make you rich. Your sacrifice will be rewarded; it’s practically guaranteed. If only you’d gotten in even earlier.

    Except when your $900,000 assessment in 2012 becomes an $800,000 assessment in 2013.

    This simple piece of paper, mailed to you by a city clerk, causes your breathing to shorten and your mouth to go dry — for a moment.

    When do you show your wife? She has been very positive about your real estate “investment strategy”, but only in the 2 1/2 years that your assessments have been going up. You remember that look in her eye when you originally proposed borrowing $750,000 from the bank to buy this half-duplex in Burnaby.

    If you added it up, which of course you shouldn’t do because you know it doesn’t work like that, your $775,000 in total debt obligation would seem uncomfortably close to your assessment. 5 years’ normal savings evaporated by the stroke of a clerk’s pen. But of course that’s only one way to look at it; more sophisticated people know that it’s about the long-term and in the long term you probably won’t have to work much past age 40.

    Houses always sell “over assessed” anyway — after all you paid more than the assessment for this place!

    You mentally rehearse a pep talk for the missus, not that she’ll need it. She “gets it” like you do — you’re pretty sure she does anyway. If not, you can explain it again with the patience of a financial sophistcate guiding the helplessly uninformed who ask questions like “where will we get the money to pay for that?

    Anyway prices pick up in the spring. And the new kitchen is stunning; that would be enough to motivate a seller right there. The address is 4884 84th street; don’t they like the number 8 for some reason you can’t remember? You should remember to look it up.

    What does a city clerk know anyway.

    • The Bookmaker | 23 January 2013 at 8:29 am | Reply

      Except we don’t have any mortgage payments and will be delighted when assessments plummet. We are discretionary sellers and buyers but realize that we will only do both when the market tanks.
      A plunging market is good for upsizers who have some cash at the ready.

    • HD | 23 January 2013 at 8:45 am | Reply

      Very fun. Thx for the laugh!
      +1

    • an observer | 23 January 2013 at 9:59 am | Reply

      And whatever you do don’t let her know that the $100K drop was as of July 2012 and that it is probably down another $75K since then!

      • The Bookmaker | 23 January 2013 at 11:15 am |

        Again, we hope that your right and prices drop 50%. Our house drops 400K, the one we may buy is down a million. We put a chunk of cash down and take on a 500K mortgage, but we’re in a house that used to cost over 2 million. If we tried to do the exact same transaction at current prices our mortgage would be over a million!
        So again, some of us want to ‘lose’ value on houses we own outright. The only better scenario is to have sold at the peak, rented, and then buy at the bottom, but that is unlikely and impractical for most.

      • Seeking knowledge... | 23 January 2013 at 2:52 pm |

        I tend to agree with Bookmaker. If say prices drop 90%, he would be able to sell his house for 90k and buy the 2 mil home he wants for 200k-90k=110k. He may have enough cash to not even have a mortgage. Was my math over-simplified or have I missed something?

  17. Westsider | 23 January 2013 at 8:33 am | Reply

    “Normal is getting dressed in clothes that you buy for work and driving through traffic in a car that you are still paying for, in order to get to the job you need to pay for the clothes and the car and the house you leave vacant all day, so that you can afford to live in it” – Ellen Goodman

    • vreaa | 23 January 2013 at 9:28 am | Reply

      Spending money they don’t have to buy things they don’t want to impress people they don’t like.
      (paraphrasing Will Rogers)

  18. jacob's ladder for rent | 23 January 2013 at 10:54 am | Reply

    thousands of former film workers protesting … quiet desperation no more
    http://tinyurl.com/bxmbgb4
    flipping houses between gigs, and refi heloc’s over and over again…. comes a time… when a movie wanker must be herd!

  19. kansai92 | 23 January 2013 at 11:27 am | Reply

    It’s called house-rich, cash poor. And my is there a lot of that going on in Hongcouver or what! I’d rather live a comfortable lifestyle without the stress than having the “privilege” to brag about owe-ning in Vancouver.

  20. newcommentor | 23 January 2013 at 1:51 pm | Reply

    In vancouver , assement value always gets your neigbour talking — in that sense, it’s a priviliege hehe .

    Joke aside, OP never revealed the networth and it’s allocation of the family, maybe they are just frugal on transportation.

  21. space889 | 23 January 2013 at 2:04 pm | Reply

    Why aren’t they renting out basements, coache/laneway houses, garages, and extra rooms to foreign students? Or even backyard plots for those community farmers. They have tons of RE just sitting there doing nothing and generating no income. That’s their problem! Get pro-active and think of ways to generate more revenue from their assets! 🙂

  22. vancouver 2011 | 23 January 2013 at 10:53 pm | Reply

    @ jacob’s ladder
    i am one of those movie wankers. and what exactly is your point?
    don’t know what line of business you are in but there is a good chance that i sunk some of the money i made from working 12 – 16 hr days in the rain into your coffee shop, retail outlet, home depot, bank, car dealership or whatever it is you do. so instead of paying $20000 in personal income tax to the benefit of everyone in this country next tax period, i have decided to go on E. I. instead, default on all my obligations and let people like you pay for me. thank you.
    then of course i won’t have the cash to spend on whatever it is you do and i’ll eventually see you in the E.I. line up too. cheers to that!

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