“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.”

Posted on 9 April 2013 | 77 Comments

“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.”
– Dazza at VREAA 6 April 2013 11:05 am

This entry was posted in 08. Overextended Buyers, 14. Social Effects of the Boom, 15. Misallocation of Resources and tagged , , , , , , , , . Bookmark the permalink.

77 responses to ““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.””

  1. Ralph Cramdown | 9 April 2013 at 6:42 am | Reply

    Just go to the land office and see how much equity a few of their peers have. You might be surprised, though you never know.

  2. Dave | 9 April 2013 at 7:30 am | Reply

    What’s the point of hanging on to their egos and not “stooping” to that level. You cannot eat ego and drywall…but maybe dogfood. Geez, people need to stop being herd animals and think for themselves.

  3. YVR Housing Analyst (@YVRHousing) | 9 April 2013 at 8:11 am | Reply

    I never had the heart to tell a few of my friends how much they have given away in transaction fees by moving. In some cases it’s well over $100K over the past decade.

    • Arshes76 | 9 April 2013 at 3:42 pm | Reply

      “a forty-year-mortgage with no money down, made back in the day when you could still do that. I have paid nearly sixty thousand dollars towards that mortgage. Nearly five years in, I have yet to touch the principal”

      Ouch, thats gotta burn.

    • vreaa | 9 April 2013 at 4:13 pm | Reply

      We’ll headline this article. Thanks for the link, 4Slices.

    • 4SlicesofCheese | 9 April 2013 at 5:50 pm | Reply

      It actually is kinda crazy when you think about it. Question is how widespread is it.
      Difference between 0 and 5% is not much either and long amorts must have already made its mark in the market.

  5. Nick | 9 April 2013 at 9:07 am | Reply

    “It’s better to be wrong with everybody than to be right alone.”

  6. Mt pleasant | 9 April 2013 at 9:29 am | Reply

    I got a ride home with a co-worker he is turning 65 this year told me he bought his condo for 150 now still owes 200+k he wants to retire this year.

  7. chipshot | 9 April 2013 at 9:53 am | Reply

    I worked with a guy a few years ago who has a mortgage for $200K, problem is he bought the place for $85K in the mid 80’s ! On top of that he has a wife that makes good bucks, he’s a tradesman who always worked steady for the same outfit making top buck and they have no big toys except his chopper. Also always drove older cars and didn’t take expensive vacations. Hard to believe but if this guy is out there, then how many more can be ? He is probably about late 50’s now so has a few more years to bail himself out but I doubt it.

    • Brian | 9 April 2013 at 11:43 am | Reply

      People are dumb. How many times as a doctor do I see patients coming in with their huge Starbucks coffee. Often times, I see a whole family, and the mother, father, and the child has a cup of Starbucks in their hands. If they do this daily, no wonder they’re in debt

      I’ve said this before and I’ll say it again, it’s the little things that add up. A cup of coffee a day, a lunch out here and there, bank fees here and there, and before you know it you’re in debt. Big purchases don’t help either. People have no concept of money, and just think of instant gratification.

      • Cyril Tourneur | 9 April 2013 at 3:49 pm |

        $200k divide $5/starbucks trip = 40,000 starbucks visits / 20 years = 2,000 trips/yr / 365 days/yr = 5.5 visits per day.
        Go long SBX!!!!
        (I don’t think Starbucks is his problem).

      • vreaa | 9 April 2013 at 4:19 pm |

        Brian -> I agree in principle.
        At the same time, if you make sensible ‘hundreds-of-thousands-of-dollars-decisions’, the pennies and dollars take care of themselves.
        (We’re living through a dangerous time where people are able to very easily make very poor ‘hundreds-of-thousands-of-dollars-decisions’.)

      • Ford Prefect | 9 April 2013 at 5:05 pm |

        My experience is the opposite of vreaa. I know from observing my fellow business partners that over the years they largely just frittered their earnings away on relatively small things – trips, dining out, cars etc. I know that I was the only one who accumulated any substantial savings while we worked together at relatively high paying professional jobs. And the only one who retired early (at 50).

      • Ford Prefect | 9 April 2013 at 5:09 pm |

        Oh, and I rented during that period. The others bought homes that to my knowledge they have further encumbered with HELOCS and additional mortgages.

      • Brian | 9 April 2013 at 5:20 pm |

        No, maybe not starbucks, but a dinner out here and there, a sub 100 dollar shopping trip, etc. all add up. My point is little purchases do add up, whether it’s starbucks, Tim Hortons, eating out daily, cigarette smoking, or whatever.

      • YVR Housing Analyst (@YVRHousing) | 9 April 2013 at 7:51 pm |

        “People are dumb”
        “as a doctor”

        I once thought like you.

      • Cyril Tourneur | 9 April 2013 at 9:33 pm |

        I guess doctors aren’t immune to financial missteps either:

        As many doctors struggle to keep their practices financially sound, some are buckling under money woes and being pushed into bankruptcy:
        http://money.cnn.com/2013/04/08/smallbusiness/doctors-bankruptcy/

    • Realtor behavior | 9 April 2013 at 4:11 pm | Reply

      My first response is wow! My second response is would they even want to pay back their debt before their retirement? I heard people fund their children’s university education, mortgage, etc with thousands and thousands of dollars taking out from their primary residence when they are approaching retirement age. Are they dumb, or aren’t they? The bottom line is it is free money from the bank! My last question is If the money gatekeeper is so irresponsible to dump the money out, do you think they will or should take it?

  8. ex-kitsie | 9 April 2013 at 10:09 am | Reply

    Many young-un’s out there, expecting a windfall, are going to be sorely disappointed when the folks kick it. And who knows what expenses may be incurred in the meantime – nursing homes aren’t cheap and getting a subsidized spot in one isn’t as easy as it once was.

  9. MP | 9 April 2013 at 11:09 am | Reply

    A B.C. couple say they were tricked into buying an “unlivable” house when they moved from Yukon to the southern interior city of Kelowna last summer.

    http://www.cbc.ca/news/canada/north/story/2013/04/08/bc-realtor-inspection.html

    • terminalcitygirl | 9 April 2013 at 4:40 pm | Reply

      I love the part where the homeowner eludes to “a lot” of similiar cases that lawyers and realtors actively settle to keep out of the media. If the media were reporting these sorts of cases throughout the last decade, I wonder how much more cautious folks would have been… The epidemic of leaky condos in the media certainly helped dampened sentiment for a while back in the mid-90s…

      • vreaa | 9 April 2013 at 9:08 pm |

        When prices were surging there were far fewer of these stories because people would simply turn around and resell the property (in Vancouver, often in a price war, and thus with no inspections).
        Their complaints are in the same category as those of Kim Campbell’s.. We wouldn’t be hearing them if the market was up.

    • canadian | 9 April 2013 at 5:59 pm | Reply

      Who in their right mind would buy a house without even setting foot in it.Thats the problem nowadays ,everybody plays stupid and expects a judge to clean up their mess and sadly they do.Grow up and look after yourself instead of whining like a big baby.

    • blammo | 10 April 2013 at 2:09 am | Reply

      People are dumb. And stop calling me doctor.

      • Real Estate Tsunami | 10 April 2013 at 8:52 am |

        I knew a Chartered Accountant, who was in his late 60s and was still 80% in equities before the 08 crash.
        His retirement fund was almost completely wiped out.

      • Ralph Cramdown | 10 April 2013 at 9:12 am |

        “almost completely wiped out.”

        I’ve heard a number of similar anecdotes, and I always wonder. Peak to trough, the TSX lost about 50% and the S&P 500 a little bit more. So unless he was leveraged or in stocks significantly more risky than the market average, ???

        It isn’t hard to construct a conservative portfolio of dividend paying equities. And if you need to touch the capital rather than living on only the dividends, you’re not as rich as you think.

      • Real Estate Tsunami | 10 April 2013 at 9:28 am |

        Ralph,
        The story actually was featured in the Vancouver Sun sometimes between 09 and 10.
        I kept a copy, but can’t find it right now. Apparently, his portfolio was very risky, which I found interesting given that he was a CA and giving his age.
        Before retirement he had a senior position at VanCity.
        My point is that also people with financial acumen can fall victim to greed, not just Doctors.

  10. Farmer | 9 April 2013 at 1:13 pm | Reply

    This is an interesting anecdote. When you look at the REBGV chart of average home prices since 1976 the midway price point is right around 2005.

    For the couple in this post that essentially means that instead of paying off their mortgage by the year 2000 (25 years assumed beginning in 1975), they have consumed all of the original equity value that was created.

    Every last cent of it. Think about that for a second.

    Vancouver prices doubled between 2005 and present….a very short 8 year period. The entire equity growth period from 1975 to 2005 no longer exists for them. Thirty years of savings blown away on lifestyle decisions.

    Only that portion of the home that was subject to the biggest speculative period in Vancouver history is what remains. Sadly, that is the part that will evaporate as homes deflate back to reality and find a bottom closer to the long run average price.

    So these people will just be paying down a debt that in theory will yield nothing for them in terms of real return by the time the market retraces back to the mean.

    Some retirement.

    On the other hand it is clear they had the benefit of the price appreciation all those years that housing was rising. Who knows….maybe they were the smart ones.

    • RE Lurker | 9 April 2013 at 2:05 pm | Reply

      Maybe it was a ploy to live “rent”-free? Then I guess bankruptcy can rid them of any obligations — after all, they don’t have anything for retirement anyways. Nothing to lose. Live free and prosper!

      • Real Estate Tsunami | 9 April 2013 at 2:09 pm |

        If you’ve got nothing, you’ve got nothing to loose.
        Like a rolling stone. Bob Dylan, the ultimate bear.

      • vreaa | 9 April 2013 at 4:24 pm |

        RETsunami -> There are extra points for anyone who mentions Bob on this site.

      • Realtor behavior | 9 April 2013 at 4:54 pm |

        That’s the point! Even though not exactly “rent”-free, say, they only pay for the interests on a 30-year mortgage, which could be paid by the help of a mortgage-helper basement. In the meantime, half a million was taken out from their house to fund their first-time buyer children’s mortgage. So, what are they gonna lose? BTW, they can also defer to pay property tax! Of course, they can still live large on their pensions! Who’s gonna lose?That’s why we have all those service cuts and tax hikes after all!

      • Real Estate Tsunami | 9 April 2013 at 7:23 pm |

        It’s a hard rain that’s gonna fall!
        No better metaphor for RE in Vancouver.

      • Ford Prefect | 9 April 2013 at 7:47 pm |

        You know how old you have become when the young woman cleaning your teeth can not identify Bob Dylan singing “The Answer is etc”

      • blammo | 9 April 2013 at 7:53 pm |

        Like Jimi’s “All Along the Watchtower,” I prefer this version better:

        In case it doesn’t work:

  12. Shane | 9 April 2013 at 4:02 pm | Reply

    VREAA,

    I’ve been following this blog for the past three years and am very fond of it. Here’s the thing: all readers of this blog are aware that housing/condo prices face a significant correction in both Vancouver and Toronto. The key question is, how do we make money off of this knowledge? I’ve already begun to purchase put options on Canadian Bank stocks and ETF’s that short the TSX with 2X leverage. I would like to hear your thoughts on this.

    • Andrew | 9 April 2013 at 4:32 pm | Reply

      I think that’s very risky. Most of the mortgages at risk of default have been insured by CMHC and have been securitized. I wouldn’t actually expect the banks to be hit hard, unfortunately.

      • Shane | 9 April 2013 at 4:45 pm |

        Andrew,

        Your point is valid. However, regardless of CMHC insurance (which only provides insurance on homes valued up to $1MM now), Bank stocks should still take a hit for the following reasons:

        1. Consumers are maxed out on leverage: Debt/Income levels average 165% Canada-wide. Hence, if consumers can’t borrow as much money as they used to, how will Banks achieve their growth targets? (keeping in mind that Domestic Banking makes up the lion’s share of Bank revenues for the Big 5). As soon as Bank’s miss their earning’s expectations, their stock values will fall.

        2. With the Basel III accord in place, Canadian Bank’s must increase their deposit base. Therefore, less lending will take place.

        3. Canadian economy slowing. It was recently reported that 54,000 jobs were lost Canada-wide. A slowing economy will hurt Bank stocks.

        Looking forward to hearing back from you.

    • vreaa | 9 April 2013 at 4:59 pm | Reply

      Shane -> I’m pleased you like the blog.
      On the blog, the very main thesis has been that cash will do better than Vancouver RE once this is all said and done.
      Of course, some other investment ideas may do better than cash, but that’s up to readers to decide.
      I am not personally making any attempts to try to directly profit from what I see as an inevitable coming Vancouver housing price collapse.
      This is not for lack of any such ideas… one could short banks and lenders close to the market, or short industries closely related to housing industry health (home building/reno supply, etc).
      But I strongly suspect timing will be very challenging, and I suspect/’know’ that there are easier ways to make money through investments than by trying to catch this event.
      (BTW, as you likely know, all of those 2x leverage ETFs show ‘slippage’ in that there is a time decay factor… they almost behave like very long-dated options… so not the best instruments when timing is a challenge).
      One should also be wary of how all of those methods are indirect. If there was a direct way of, say, shorting the market price per square foot of Vancouver condo, or shorting a basket of Vancouver houses, it may be more attractive. But one could imagine housing prices dropping, and because of some unpredictable intervening factor, this NOT translating into gains on those indirect ideas. (Witness those who tried to play the US RE/financial collapse by shorting the USD.. they correctly predicted the big picture, but didn’t profit.. I think Peter Schiff was an example of that).
      So, given the timing and the ‘muckiness’, not easy terrain.
      Ben Rabidoux is consulting for an investment firm, and I believe that they were attempting to work out ways of investing with coming RE market weakness in mind; not sure of the specifics, though.

      • blammo | 9 April 2013 at 7:48 pm |

        Good advice VREAA.

        Shane, if you are renting you are already short. I personally would not advise trying to short specific equities in any size (been there done that).

        As a local RE owner I admit to having looked for downside protection but have not found anything adequate. Instead, I have invested in equities that should give me interest rate protection and I have moved more funds into US markets (and USD) than normal.

        I am also adding to the asset that shall not be named.

        I guess what I’m saying is, diversify.

      • RE Lurker | 10 April 2013 at 10:58 am |

        If you read “The Big Short” by Michael Lewis, of all the people who played the game, it seemed like very few people actually “won” — those he interviewed. It also seemed like they lucked into it. Sure, they were smart people, but their timing of entry was very lucky (at least I think so). Also, they employed a few different options, but it seemed like it was fraught with risk and they also had to ride the wave for years before there was any payout.

        In terms of timing, (it’s been a while since I read the book), but I think we’re too far past that point now to be “in the market” when the winners of that book played. (e.g. I think some of them were looking at this problem in 2003, 3 years before the peak of the housing bubble — 2011 was the “peak” for ours…).

    • Ralph Cramdown | 10 April 2013 at 3:37 am | Reply

      If you want to do your homework, I’d suggest looking at Brookfield Real Estate Services, Coast Wholesale Appliances, Genworth MI Canada and the subprime mortgage outfits.

  13. Anon | 9 April 2013 at 4:27 pm | Reply

    Ladies and Gentlemen I present to you…. the future.

  14. vancouverbubbleman | 9 April 2013 at 6:33 pm | Reply

    everything is ok now. ctv news just did a piece on a ‘new real estate boom’ in north van. a room filled with developers pumping up north van. it is just too funny for words.

  15. Flava Flav | 9 April 2013 at 6:56 pm | Reply

    Consider headlining this.

    • Cyril Tourneur | 9 April 2013 at 9:48 pm | Reply

      With that kind of analysis he should be stocking up on real edible apples and a dehydrator. He’s going to be needing the food.

  16. blammo | 9 April 2013 at 7:34 pm | Reply

    I wonder if the OP was attempting to time the market with all their yo-yo-ing and out of real estate?

    Transaction costs are a killer and timing the market is very hard. At this point they may indeed be ‘forced’ to rent.

    • rp1 | 9 April 2013 at 11:44 pm | Reply

      Market timing can be helpful for accumulating long term positions mid-cycle, but I think we’re past that and deep into the “no value” phase. Of course if you’re early then market timing is stupid.

  17. HAMMER_ | 9 April 2013 at 9:20 pm | Reply

    white people are bad with their money. that’s nothing new.

  18. Paula | 9 April 2013 at 10:20 pm | Reply

    That’s a really bad situation if you’re in your retirement age but still owes a big amount. I’d definitely sell off any properties and pay it off than retire with a huge debt in my hands.

    • rp1 | 9 April 2013 at 11:53 pm | Reply

      I’ll give 50:1 odds they will not do that. The people thinking baby boomers will sell are wrong. The vast majority will not sell until they are absolutely forced to, because then they have to take responsibility for themselves and their situation. People like this will not do that. No way.

      Therefore, I expect either: 1) this incredible subsidy will continue and the seething and denial will get much worse, or 2) there will be some kind of massive uncontainable crisis.

      Or maybe one then the other.

  19. paul | 10 April 2013 at 7:38 am | Reply

    My wife and I must be considered strange….we have lived in the same house now for 14 years….or first house and one and only set of transactions fees when we bought. We still make money the old fashioned way – both self-employed. Flipping properties must be a pain in the ass. Personally, I can’t afford all the down time and the hidden costs associated with moving.

    • Burnabonian | 10 April 2013 at 10:25 am | Reply

      Weirdos!

      I am a harlequin in my circle because I pay <$900/mo for all housing costs combined. I actually have to hide this fact at work, as professionals who do not own property are often seen as fringey and irresponsible…or possibly addicted to drugs I guess.

      My place is clean, quiet, comfortable, 10 minutes from work, a hedge against economic uncertainty, and most importantly a means to an end.

      All of my family and friends are up to their balls in RE gambles, but choose to see me as reckless.

      Meanwhile I know people who purchased multiple dwellings within a year, all non-CMHC, all on a single modest down payment — just by "moving the equity around" before each purchase.

      I decline to give more specifics because I'm afraid that VREAA will headline it: it's an archetypal story of unsaleable defective properties, nightmare tenants, 100+% renovation cost overruns, and emergency loans from retired parents, all enabled by extremely loose lending standards and the belief that any real estate purchase is a responsible purchase.

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