Tag Archives: Retirement

“My neighbours, in their late 60s, just put their house on the market. They had said they would die in that house, but now they are worried that with the housing market going south they may be losing a lot of equity and they better sell now before it gets worse.”

“I can’t believe it!
My neighbor and his wife, who are in their late 60s, just put their house on the market.
I talked to them often before, and they said they would die in that house and leave it to their only son.
But now they say they are worried that with the housing market going south they may be losing a lot of equity and they better sell now before it gets worse.
To make matters worse, 1 year ago they took out a HELOC for $30k to help their son buy a condo.
Two week’s ago their son received a note from his strata that a special levy of $40k to cover inefficiences in the building envelope has to be paid.
Another leaky condo!
Needless to say, the old couple has no other assets than their rapidly depreciating house, so they are panicking.”

– Real Estate Tsunami at VREAA 23 May 2013 10:53pm

Hello again to all readers.
Posts recommence with this powerful anecdote from RETsunami.
We will aim to pop up anecdotes here on an occasional and irregular basis; we trust they will be appreciated nonetheless.
Keep well.
– vreaa

“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.”

“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

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

“One of my old high school buddies finally got her mother to sell the family home in Kitsilano – sold for over $1M, monies realized after debt paid off $185K.”

“One of my old high school buddies finally got her mother to sell the family home in Kitsilano – sold for over $1M, monies realized $185,000. Home equity loans and “helping” out the kids does take a toll.”
ex-kitsie at VREAA 30 Mar 2013 3:17pm

Even longstanding owners are speculating on future price strength.
– vreaa

More Undisclosed RE Industry Insiders Publicized As Clients – “In 1995, Allan and Karin Hoegg were mortgage-free. But no more. Today their Vancouver home is a valuable source of income as they plan for full retirement.”

Allan and Karin Hoegg are pictured in their home in Vancouver, British Columbia on March 8, 2013 [image F.Post]

“In 1995, Allan and Karin Hoegg were mortgage-free. But no more: today their Vancouver home is a valuable source of income as they plan for full retirement.
Allan Hoegg says when their son and daughter-in-law wanted to buy a house, they took out a variable-rate mortgage so they could help them out. “We wanted to take advantage of the stability of the current rates.” To cover the mortgage payments, they rent out a suite in the home to students.
The couple also established a home line of credit that allows them to free up cash for investment purposes when they need it. “It gives you maximum flexibility and you can pay it any time you want without penalty,” he says. “It’s dead easy.”
Like many people planning their retirement, there’s a sentimental side to keeping their home, he says. But there are just as many practical reasons. In the Hoeggs’ case, selling to downsize would mean substantial commissions and moving costs. “Besides, real estate is a very good investment in Vancouver,” he says. “The longer we can stay here, the greater the possibility of no-tax capital gains.”

“For the most part, people want to stay in their homes, says Rob Regan-Pollock, senior mortgage consultant with Invis – Team Rob Regan-Pollock mortgage brokers in Vancouver. “The fact is they’re sitting on a big nest egg. So when they get near to retirement, they start asking how they can use that equity to help them in their retirement.”
There are plenty of options to consider, from applying for a line of credit or reverse mortgage to renting out your property to finance your monthly costs at another residence.
A line of credit is the most flexible option, Regan-Pollock says. “If for some reason you can’t meet your monthly expenses, a line of credit on your home can be a very good buffer. The interest rates are low — typically prime or prime plus one per cent, depending on the institution and your qualifications. It’s also quite sustainable, since your home will often appreciate in value more than the amount of debt being drawn down against it.”

– from ‘Home is where the retirement money is’, Denise Deveau, Financial Post, 13 Mar 2013

Comments from ‘Bo Xilai’ below the FP article, 27 Mar 2013:
“Denise, why didn’t you mention Allan Hoegg works for Invis – Team Rob Regan-Pollock mortgage brokers. Of course he’s going to use his house as an ATM… he’s just eating his own cooking. And at the same time you’re interviewing Rob Regan-Pollock as an “expert” in your piece. http://www.teamrrp.com/team/
More fake real estate stories using employees as plants.” …
“They used an employee of the “expert” interviewed without disclosure and, I would argue, in a deceitful manner to promote a strategy beneficial to the “expert’s” reputation and business interests.”

Allan Hoegg (top left) part of Team Rob Regan-Pollock mortgage brokers [image teamrrp.com]

[thanks to ‘C’, for sending news of the article and ‘Bo Xilai’s comments to vreaa via e-mail, 27 Mar 2013]

This article is interesting..
1. for the undisclosed insider publicized as client
2. for the journalist’s ineptitude or, alternatively, collaboration
3. for the retirees’ dependence on RE holdings for retirement funds
4. for the fact that such borrowings were used to purchase more RE
5. for the need for tenants in their ex-SFH to cover mortgage payments
6. for the assumption that Vancouver RE is “a very good investment”
7. for the assumption that prices will continue to rise.
– vreaa

For those readers unfamiliar with the recent high profile case of industry insiders masquerading as condo buyers, please see:
CTV TV News Featured ‘Condo Buyers’ Actually Marketers Of Very Same Condos!, VREAA 13 Mar 2013

This article also headlined and discussed by Whisperer here:
‘Another media scandal from the real estate industry? News article appears to be contrived shill piece from PR company.’, 28 Mar 2013

Downside Weights On The Vancouver RE Market – “One of the older guys (over 60) mention to the guy beside him that he and his wife were thinking about selling their family home, and renting, in order to get some of the money that was locked up in the house.”

“Every Friday I play hockey with a bunch of guys who are over 55. I’m a goalie, so even though I’m not 55, they let me play – I guess it’s hard to find 55 year old guys whose knees are willing to bounce up and down off the ice for an hour and half.”
“Anyways, I overheard a conversation in the dressing room last Friday. One of the older guys (over 60) mention to the guy beside him (over 70) that he and his wife were thinking about selling their family home, and renting, in order to get some of the money that was locked up in the house. The over-70 guy nodded in approval. The over-60 guy asked if he had heard of anyone doing this before, as they couldn’t see any other way to continue to fund their retirement.”
“The over-70 guy nodded, and said “Yup, we did it a couple of years ago. We’ve been renting now for two years – we had to do it, because we couldn’t afford the property taxes each year anymore”.

– anecdote from ‘Ross’, relayed by Garth Turner at greaterfool.ca 27 Mar 2013

“Boomer retirement supply” will be just one of the factors weighing on the Canadian RE market in these coming years.
In Vancouver, there will be many other downside weights. We anticipate that the largest will be the loss of speculative buying (all buying based on the idea that prices go up will stop). Another downside weight will be the knock on effects of a shrinking RE sector (loss of jobs; loss of related economic activity; people leaving). Yet another will be the disappearance of the ‘move-upper’ market (as condo prices contract, almost all wannabe move-uppers will be stuck.. they will not provide support for townhome or SFH prices). Another downside weight will be cash flow negative properties coming to market that have only been held because prices have remained strong enough (we’d expect this to include some of the empty condos we recently heard about). Collapsing RE markets in China will have a modest direct downside effect, but also a larger indirect downside effect through the psychological impact on local speculators.
This list is not comprehensive, I’m sure readers can think of other mutually-perpetuating downside mechanisms. When a speculative mania cycle turns from ‘virtuous’ to ‘vicious’, the multiplier effects reverse.
Boomer supply will be just one of the many downside weights. Many who are reliant on paper RE wealth for their retirement fiscal health will come to market; as prices drop, some will do so with urgency.
– vreaa

Lower Mainland Couple In Their 70’s; RE Makes Up 216% Of Net-Worth; Desire To Buy More – “My friend is getting worried about his parents’ financial situation.”

“I was talking to a friend earlier today, He’s getting worried about his parents’ financial situation…
Get this:
$2.6 million invested in real estate… all in the Lower Mainland.
$1.4 million of mortgage debt (54%). Dad is over 70, mom not much younger.
Imagine a collapse of 50% of the market in the LM. The entire family’s net worth would be wiped out. Really scary. The irony? They want to invest even more in real estate (because they lost so much money in mutual funds…).”

Makaya at VREAA 6 March 2013 8:22am

We still believe that the (90 minus age)% guideline for maximum percentage of net-worth that should be in RE makes sense.
These guys should have less than 20% in RE, their actual number is 216%… and they want to increase it!
We’ve heard enough of these stories now to extrapolate that there are a significant number of people in this position. They are very vulnerable to price declines, and they make the market that much more vulnerable, too.
– vreaa

“Forty percent of homeowners over age 65 had mortgage debt in 2010, compared with just 18% as recently as 1992, Reuters reports.
The Investor Education Fund recently found that 24% of Canadian homeowners surveyed expect to have debt on their principal residence after they retire. Of those who expect to owe money on their homes when they retire, more than one-quarter said they don’t know how they will pay it off.”

advoc8 at VREAA 6 Mar 2013 at 2:12pm, quoting from ‘How Baby Boomers are rewriting the rules of retirement’, Financial Post, 6 Mar 2013

Spot The Speculators #99 – ‘Canada Don’t Let Your Retirees Grow Up To Be Real Estate Cowboys’ – Alberta Couple Late 50’s; Net-worth $196K; RE Holdings $1,850K

“Alberta couple, Edward, 58, and Sue, 56, earn gross income of $247,200 per year from working in two great jobs — his in transportation management, hers in health care. Yet they are almost broke.
The problem is they are shelling out $47,514 per year just in interest charges on liabilities that amount to 6.7 times their annual pre-tax income. Their assets add up to $1.85-million, leaving them with a net worth of only $150,000 as the end of their careers comes into view.
The problem will get worse if not fixed, because they are not making a dent in the principal they owe. When interest rates rise, their debts will become ever more costly to carry. Unless they act, they will not be able to retire as planned. They may not even be able to avoid eventual insolvency. “Should we be selling off investments, some at a loss?” Edward asks. “We are working hard to keep our heads above water, but we feel that it is a losing battle. Our goal is to quit when I am 64. Question is: Can we do it with our heads above water?”
The numbers don’t look good: Their debt is about nine times their equity and their investment income is negative.”

– from ‘High-income couple has to deal with some real estate headaches’, Andrew Allentuck, Financial Post, 11 Feb 2013 [hat-tip kansai]

Breakdown of their assets and debt:

Assets (market value where applicable):
House: $950K
BC ‘income-generating’ property #1: $540K
BC ‘income-generating’ property #2: $240K
Arizona Condo: $120K
Total assets: $1.85M

House mortgage: $758K
BC property #1 mortgage: $446K
BC property #2 mortgage: $329K
Business Loan: $75K
CC Debt: $32.7K
Car loan: $13.2K
Total debt: $1.654M

Net-worth: $196K
RE holdings: $1,850K
Ratio of net-worth to RE: 1:9.4

By sensible estimates, one should hold no more than (90 minus your age)% of your net-worth in RE.
By that measure, this couple should have 33% or less of their net-worth in properties; the actual number for them is 944% (yes, not a typo – nine hundred and forty four percent).
If RE blinks, these guys are underwater. In fact, given the current market, they very likely are already underwater in that they’d probably have to drop prices by at least 10% to liquidate their holdings.
If prices drop by 30% or 40% or 50%, or even more, their retirement plans will be completely destroyed.
This is a more extreme example, but the fact remains that a very substantial percentage of Canadian ‘boomers’ are overdependent on the health of the RE market for their future financial health. And, like the couple in this example, they will likely be advised, or forced to the conclusion, that they have to lighten up their RE holdings.
– vreaa

Spot The Speculators #98 – “Robert has been tapping his savings for years to support his biggest investment, a rental property that bleeds more than $1,000 a month over the rents it produces.”

“Registered retirement savings plans are the lifejackets for the retirement of a British Columbia couple we’ll call Robert and Jill. At 55, he is a maintenance supervisor for a small town. Jill, 48, is a self-employed management consultant.
“We need to get more money for our retirement and we have to make up for the savings that Robert lost through bad investments,” Jill says.
“We have to rebuild our investments, specifically our RRSPs, if we are going to be able to retire comfortably.”
Their RRSPs have a balance of $355,000 heavily allocated to growth stocks and mutual funds.”

“Robert and Jill have been short of cash and have abandoned RRSP contributions in the wake of a divorce that cost Robert $100,000 on top of a six-figure loss on a business.”

“Unfortunately, Robert has been tapping his savings for years to support his biggest investment, a rental property that bleeds more than $1,000 a month over the rents it produces.
If the property were sold for its $650,000 estimated value, it would leave $200,000 after paying off the $414,366 selling costs. That would pay off $30,000 in other debts and leave $170,000 to put in RRSPs. In 10 years at retirement, that would have grown to as much as $290,500 and could then add $16,000 a year to retirement income.”

Residence $550K
Rental property $650K
RRSPs $356K
cash $10K
3 cars $35K

Mortgages $414K
LOC + CC $30K


– from ‘Family Finance: RRSPs to the rescue’, Andrew Allentuck, 6 Feb 2013 [hat-tip space889]

Clearly only hanging onto rental property for presumed future price gains. Ergo, speculators.
Percentage of net-worth in RE: 100%
Percentage of net-worth that should be in RE at age 55: 35% or less
Percentage of BC boomers in similar position: [your guess here]%
Implied price downside when couples like this started selling: [your guess here]%

– vreaa

“Almost one-half of Home Buyers Plan participants paid less than the full required repayment amount in tax year 2011.”

“Almost 1.8 million Canadians participate in the Home Buyers Plan (HBP), according to the latest available numbers from CRA but here’s the interesting part…
We’ve long operated under the assumption (based on past StatsCan research and CRA data) that 25-35% of people don’t make the annual repayments required by the plan. It turns out those numbers are a bit shy.
CRA told us last Wednesday that almost one-half of HBP participants (47%) “paid less than the full required repayment amount in tax year 2011.” (2011 is the latest data available.
That means almost 1 in 2 HBP users paid income tax on the RRSP money they borrowed and didn’t repay on time. (The amount of any repayment shortfall is considered taxable income, and tax is assessed on this amount at the individual filer’s marginal tax rate.)
That’s not to mention the tax-deferred investment gains they’re forgoing by not leaving the down payment funds in their RRSP. This lost growth directly impacts their income in retirement.
Such is the price that many young buyers are paying to own a home sooner. Is it worth it?”

Rob McLister at Canadian Mortgage Trends, 5 Feb 2013

“Our unhealthy obsession with home ownership is never more clearly seen than it is in a well-used federal government program called the Home Buyers’ Plan.
The HBP allows first-time homebuyers to withdraw up to $25,000 from a registered retirement savings plan to help cover a down payment. Somehow, we’ve decided that houses come before retirement savings. That’s a mistake and it needs to be corrected by winding down the HBP.
Prepare for hysteria if this is ever seriously discussed by the federal government. “There’d be a deafening outcry from the real estate industry, mortgage industry, first-time buyers, and many politicians,” Robert McLister, editor of the Canadian Mortgage Trends blog and a mortgage planner, told me in an e-mail. “First-timers have already taken the brunt of recent rule changes, so canning the HBP would be viewed as war against young homeowners.”
This is true, and here’s why. The idea that everyone should own a house is a foundational and uncontested financial principle here in this country. The massive rise in house prices since the mid-1980s has convinced almost everyone that there’s not only a social and economic benefit in promoting home ownership, but also a financial one for owners.
If you’re buying in some cities at current prices, that latter point is debatable. …
Through the HBP, the federal government is telling us that buying a house is important enough to scoop down-payment money out of your retirement savings. Why is Ottawa handing out bad financial advice?”

Rob Carrick at The Globe and Mail, 4 Feb 2013

The spec mania in RE has been fuelled by those who have overextended themselves, using any means available, to buy properties at preposterous price levels, in the certain belief that prices can only ascend further.
There is now evidence from numerous quarters of debt limits being reached.
– vreaa


From the comment section at the G&M:

“Wrong on this one RC.
– best decision ever for us, able to purchase our first house several years earlier
– have steadily paid back the HBP so the money is not out of service forever
– house steadily appreciated faster than our RRSP by several hundred thousand $”

– Big Dan 5 Feb 2013 6:03am

Yeah, looks great on the way up, don’t it? – ed.

“The Richmond home had been for sale for about six months, and rather than lower the price any further, the couple decided to take the home off the market. They are in their late 60s and want to downsize to a condo.”

“Realtor Larry Biggar said one of his clients did just that in November. The Richmond home had been for sale for about six months, and rather than lower the price any further, the couple decided to take the home off the market. They are in their late 60s and want to downsize to a condo, Biggar said. He said everyone who went through the home liked it, but that they all seemed to be waiting to see what would happen with prices.
“We watched the market slow down, and slow down, and slow down. … It just got quieter and quieter,” said Biggar, who works with ReMax Westcoast.
“Finally they said enough is enough. We really don’t have to sell. We can stall our plans if need be, although that’s not our first choice.”
Biggar said the couple will be putting their home back on the market soon, and although they have not discussed the asking price, it will probably be the same price it was when they took if off the market.”

– Richmond News 9 Jan 2013, as quoted by Real Estate Tsunami on VREAA

See The Myth Of The Discretionary Seller for discussion of the syndrome of ‘Sellerpause’©. – vreaa

“You might feel differently if you’re a baby boomer who plans to sell the family home soon to help finance your retirement. The same applies if you bought recently and expect rising prices to carry you into a bigger home in a few years.”

“None of this matters to people who own homes they’ll live in for many years to come and thus shouldn’t care much about the current value. You might feel differently if you’re a baby boomer who plans to sell the family home soon to help finance your retirement. The same applies if you bought recently and expect rising prices to carry you into a bigger home in a few years.”
– from ‘Canada’s housing hangover: Real estate boom, meet dot-com crash’, The Globe and Mail, 2 Jan 2012[Hat-tip Nemesis and other readers]

In Vancouver, almost every owner has come to ‘care much’ about the ‘current value’ of their home. – vreaa

Spot The Speculators #94 – They’ve lowered their price to $950K already, but they’re “not going to lower it any more because they want to retire, and they really believe that’s what it’s worth because they built it themselves, and it’s one of a kind, yadda, yadda, yadda.”

“Talking to a colleague at the office this morning over coffee. Her relative is trying to sell their $950K house and acreage on the Sunshine Coast in BC, just a 45 minute ferry ride north of Vancouver. It was built it in 2000…..but they inherited the land for 10 years before that. So, a 50/50 “freebee” from a monetary perspective, but that’s only “IF” they didn’t take all of their equity out, that is……and we don’t know that they didn’t do this already.
I casually asked how long it had been listed, and I got the reply “since late 2008″. ROFL !!
Then I get told they’ve lowered their price already, but they’re “not going to do it any more because they want to retire, and they really believe that is what it is worth because they built it themselves, and it’s one of a kind, yadda, yadda, yadda”. So I go and search the town on realtor.ca and it looks like a really bad case of the measles have hit the Sunshine Coast. Not only is there literally a hundred red dots, but most of them have numbers like 12, 25, 43, 33, 17, 5, etc, overlaid on them, indicating multiple listings contained within that dot.”

Carioca Canuck at VREAA 28 Dec 2012 8:18am who added “Here’s another anecdote from the “willing to sit until I get my price crowd”.

We’re making the point here that any owners who have decided to sell, but then don’t steadily drop their ask price until they hit a bid, are delaying selling on the premise of future market strength.
This is also an example of long-term owners who have, it appears, become dependent on the presumed value of their RE for their future retirement security. We fear that there are many in their position who will have their plans hobbled in the downturn.
– vreaa

“About a third of Baby Boomers plan to sell their home to fund their retirement. They shouldn’t be relying on their homes. Even if prices don’t plunge, big increases in property values are a thing of the past.”

“About a third of Baby Boomers plan to sell their home to fund their retirement, according to a study that questions whether buyers will dry up as that massive segment of the population downsizes.
Bank of Montreal is warning Boomers not to count on that nest egg, while other observers suggest that even if prices don’t plunge, big increases in property values are a thing of the past.
“They shouldn’t be relying on their homes because there are risks,” says Marlena Pospiech, a retirement strategist at the BMO Retirement Institute.
The bank suggests the following risky scenario: As Canada’s population ages, more Boomers will be retiring and selling their homes, putting downward pressure on prices.”
– from ‘Boomers warned using home sale to fund retirement could backfire’, Garry Marr, Financial Post, 31 Oct 2012

Gee, now where have we been hearing this warning, for, umm, the past 4 or 5 years?
As we said on an earlier post today: “Opinions previously held only by lunatic bears-on-blogs are being expressed mainstream.”
Note how the possibility of price “plunges” are now also entering the mainstream discussion.
– vreaa

“The Accountant was advising people to retire without any debt. The Radio Host says in an incredulous tone “But is that REALLY possible???”

“This was the topic on this morning’s financial tips spot on CBC radio. A CA was advising people to reconsider if they are liquidating their RRSPs in order to fund a bad real estate investment (or something like that, was half-listening for part of it). One thing that caught my attention, the CA was advising people to retire without any debt. The radio host says in an incredulous tone “But is that REALLY possible???” WTF? I for one, don’t understand how someone who is in their 50 or 60s, bought their house in the 1970s or 80 for at least 50% less than what prices are today, can have an enormous amount of debt going into retirement. But I guess people have been taking money out of their houses in the form of HELOCs so it shouldn’t be so surprising. But it really shouldn’t be this way. People are counting on their houses being worth so much when they retire, but maybe they shouldn’t.”
pricedoutfornow at VCI October 23rd, 2012 at 10:03 am

A significant number of Vancouverites close to retirement are overly in debt and overdependent on the market value of their homes for their future financial health.
A significant number of radio show hosts, and other commentators, are unable to imagine how this could be any different.
– vreaa

“My parents have a paid off home and approx. $300,000 in retirement savings. It’s gonna be a tight budget to make that money last 20 years or so.”

“My parents paid off their home 15+ years ago. As far as they were concerned then, they thought they would be ok: $100,000+ in RRSP’s, a paid off home. My mother quit her job cause they no longer need the income etc…. Who wouldn’t – in fine shape with a paid off home???? Well my dad didn’t put away more in RRSP’s (I guess he thought what was the point with a paid off home?) and at 65 was told he didn’t have enough to retire. So he worked two 2 years more of physically draining work 8-10 hours a day, cause he wanted to travel some, go back to visit relatives etc… Then he had a stroke so he’s essentially retired.
They now have a paid off home and approx. $300,000 in retirement savings. Even with $300,000+ it’s gonna be a tight budget to make that money last 20 years or so. They’re hoping for $1000 a month from their RRSP’s on top of approx $1800 a month in OAS and CPP. I’ve run the numbers and its not pretty.
That will probably mean no travel to see relatives, maybe no car in the future, cable may have to go.
I’ve never seen that many seniors out there say, “I own my home so I’m the happiest person there is”, what I do see is alot of cranky seniors who COMPLAIN about the cost of EVERYTHING. If you knew how much it cost to run a home, shouldn’t you have saved money for those costs in retirement?
Its easy to think that owning a home is FANTASTIC when your retired, but its a bitch when just maintaining a roof over your head eats a big chunk of your lowly income.”

Arshes at VREAA 12 Sep 2012 at 3:57pm and 4:10pm

Okanagan Airline Pilot Near Retirement – Assets: RE ‘Worth’ $2 Million; RRSP $100K

“Housing grows more turgid each passing week. I tried explaining that yesterday to the airline pilot living deep in the folds and creases of the Okanagan Valley, where he has a $2 million waterfront property and just $100,000 in RRSPs as he nears retirement. “This is not a happy asset allocation,” I said, as he told me how much he was worth. “Try selling the house for six months and see.”
An illiquid house is worth nothing. Just bills.”

– from Garth Turner at greaterfool.ca 11 Sep 2012

“The Math Isn’t Good” – Only 45% Of Canadians Over 50 Have Saved Even 25% Of Their Ultimate Retirement Goal

“A recent Canadian Payroll Association (CPA) study found that 45% of aged 50+ participants had saved 1/4 of their ultimate retirement goal. With 3/4 of their working years behind them and less than 1/4 saved towards retirement, the math isn’t good.
Low interest rates have been tempting to all Canadians, and the 50+ group has unfortunately been no different. In fact, according to Statistics Canada, about 2/3 of working Canadians over the age of 55 have debt and about 1/3 of Canadians still have debt even after retirement. And while their indebtedness has grown in a low-rate world, has stock market volatility created an environment of investor apathy where spending has become more attractive than investing? … Low rates are having a pretty significant cultural impact on us and perhaps more specifically on the Baby Boomer generation.”

– from ‘How low rates have changed us’, Jason Heath, G&M, 8 Sep 2012

“It might seem a bit ridiculous now that the house is fully paid off, and you finally have time to enjoy it, for someone to suggest that you sell it. The challenge we are seeing is that homes represent 50 to 80 per cent or more of their net worth.”

“Many Canadians entering retirement find themselves with a significant portion of their net worth tied into their principal residence. Home ownership in many ways is the national symbol of success. Most clearly remember the first home they purchased, and it’s hard forget the years of forced savings to pay down the mortgage.
So it might seem a bit ridiculous now that the house is fully paid off, and you finally have time to enjoy it, for someone to suggest that you sell it.
But for some, this is the only way they can ensure a comfortable retirement. In first getting to know our clients we ask for a net worth statement that lists all assets and liabilities. The challenge we are seeing is that homes represent 50 to 80 per cent or more of their net worth.”

– from ‘Comfortable retirement? It’s time to sell your house’, Kevin Greenard, Victoria Times Colonist, 14 Aug 2012 [hat-tip kabloona]

What percentage of Vancouver homeowners aged 55 – 65 have “50 to 80 per cent or more of their net worth” in their homes?
– vreaa

Low Retirement Savings + High Homeownership = RE Sales

53% of Canadians plan to keep working ‘after retirement’.
A further 29% ‘said they were not sure if they would work after retirement’.

Almost half of today’s 50-59 year olds have less than $100,000 saved for retirement.
“The retirement landscape is shifting as baby boomers reach traditional retirement age with a smaller nest egg than they expected to have.” – Christina Kramer, executive vice-president, retail distribution and channel strategy at CIBC.
– from a national online survey (n=805; 5-8 July 2012), conducted last month for CIBC by Leger Marketing. As reported in Globe and Mail 20 Aug 2012, and numerous other news outlets.

Bank of Nova Scotia economist Adrienne Warren says that when the latest census figures come out next month she expects us to be in the elite company — depending on your view — of countries with more than 70% of households owning their own homes. Based on the 2006 census, we were at 68.4%. … Interestingly enough, the United States is believed to have cracked that 70% threshold before the bottom fell out of its housing market. … “The government is saying you should not be a homeowner if you cannot afford it,” said Benjamin Tal, deputy chief economist at CIBC World Markets Inc.
– from ‘Home ownership in Canada reaching new heights’, Financial Post, 17 Aug 2012

A large number of underfunded homeowner boomers will be heading for retirement with their only substantial asset falling in value. This will add to supply and plunge RE prices further.
– vreaa

Canadians Planning On Selling Homes To Fund Retirement

“Peter and Mary are in their mid-50s and earn two incomes. They are wondering whether they can retire at 60.
It helps that their three children have grown up. The two oldest are “off the payroll” and the youngest is expected to become self-supporting after he completes university in three years.
Their retirement dreams aren’t extravagant. The couple plan to sell their house and live six months of the year in their condo (where the youngest child is now living rent-free until university is finished).”

– from Financial Facelift, Globe and Mail, 10 Aug 2012

“In Alberta, a couple we’ll call Lars, 57, and Phyllis, 56, waited until their late thirties to have children. Not long after, Lars lost his job with a multinational company, forcing him to retrain for a new profession. Phyllis had an illness that curtailed her career and made her a stay-at-home mom doing part-time work. But they adapted.
Today, one child is in university and one is about to start. The couple has six figures of debt and no capacity to save after paying all their bills out of $7,450 in monthly combined take-home income.
With no more than eight years to go to Lars’ planned retirement at 65, they wonder how can they finish paying the university bills and retire with financial security. …
They plan to boost retirement income by taking advantage of high real estate prices in Alberta. They want to sell their $450,000 house and move to the Maritimes, where, they think, they can buy a similar house for $225,000. The difference would add to their retirement capital.”

– from Family Finance, Financial Post, 10 Aug 2012

Many Canadians are planning to sell their homes to help fund their retirement needs.
There appears to be a significantly sized group of them intending to do this at much the same time.
The majority will be disappointed by falling, in some cases plummeting, home prices.
– vreaa

“We recently let our recreational property listing lapse because we could not get what the property was worth to us. We will try again in 5 or 6 years.”

“We recently let our recreational property listing lapse because we could not get what the property was worth to us. We will try again in 5 or 6 years.
We sincerely want to sell, but on our own terms. I wonder how many listings are driven by expectations of windfalls and not need.”
Jim at yattermatters.com 20 Jul 2012 7:33pm

In 5-6 years time, that property will almost definitely have a market value substantially less than it does now. If the proceeds from this sale are important to retirement plans, Jim should sell now.
– vreaa

“Are you a landowner in Pitt Meadows?” – “No, a happy renter while the market collapses.” – [Laughing] “That won’t happen!”

“I was just walking into the IGA in Pitt Meadows, where the front page news is property taxes squeezing pensioners and fixed incomes.
There out front of the store stood an older gentleman beside a table, with signage relating to the hot topic and asked me if I was a landowner in Pitt Meadows, I blurted out without a thought “No, a happy renter while the market collapses, which will sort the tax issue at hand.” The man burst out laughing and proclaimed “That won’t happen!”.
May I note that adjacent to this IGA are the foundations for a 388 unit condo building. They’ve got the posts up for the signage to face Lougheed, but the marketing placards aren’t up yet. At the same time, behind the IGA, there is a rezoning app for a 97 unit residential mixed use, all within arms length of 4 other condo/townhouse developments that appear to be certainly under six to eight years old.”

– from Aldus Huxtable, via e-mail to vreaa, 8 Jul 2012

Spot The Speculators #86 – “My unemployed friend bought two townhouses in Langley, one for him to live in (20% down) and one as an investment (30% down). His retired father bought four townhouses in the same development, all of them bought with 20% down.”

“I had dinner with a good friend of mine last night. He got back from Korea five months ago after four years working there. We were discussing about his work situation as he can’t find a job here and is now considering moving out of Vancouver.
The trick? He bought two townhouses in Langley, one for him to live in (20% down) and one as an investment (30% down). His father bought four townhouses in the same development (“his retirement plan”), all of them bought with 20% down. He told me: “we got them under market value, the developer gave us a discount”…
I asked him the question:”if the market goes down by more than 20% in the next 5 years and the bank asks you to put more money into the houses at refinancing time, will you be able to do so?” Puzzled answer: “no”.
He and his dad have basically put all their savings into that development. These are not the type of people you would imagine being RE speculators (they don’t see themselves as such), but they just don’t have a clue of what’s going on in the RE market here. They’ve bought into what the developer told them…
So here we are: one unemployed and one retired putting all their savings into RE. How strong can the market be when people like them are so over-leveraged in real-estate? How many people like them on the market?”

Makaya at VREAA 6 Jul 2012 10:41pm

These guys are gamblers who don’t even see themselves as such. They think they’re ‘investing’. They’d be better off taking their down-payments, walking up to the roulette table, and putting everything on black. In that scenario the close to one in two chance of doubling their money is better than their current set up, where there is a close to 100% chance of losing it all. Seriously… Gambling is not raised here as metaphor nor as hyperbole… they statistically would be better off with a two to one bet. Even at this extremely late stage of the cycle, we have buyers entering who cannot imagine Vancouver prices dropping. Truly mind-boggling.
And the “got them under market value” line is just so pathetic that hearing it induces cataplexy, a state where, overcome by emotions, your muscles lose tone and you collapse to the ground.
As Makaya says, how many like them in the market?
– vreaa

“I have a relative that used a HELOC on her parents’ home to purchase a Coquitlam home in 2010.”

“I have a relative that purchased a Coquitlam home in 2010. She and her husband took a heloc on her parents home. Parents home bought for $520K and now worth $925K. There was about $300K mortgage on the home. Well, not anymore. They borrowed $130K for the Coquitlam home. Purchase price %60K, put down $80K, and $40K went to reno’s and other home costs. They bought in pressure times. Paid $40k over asking too. They’re left with massive debt and put risk to the parents as well. The loc they borrowed, they have only paid interest on it. So that loan is still the same at $130k. So basically, the home was purchased with 100% financing. The home is worth about the same as the price they paid in 2010.”
Van east guy at VREAA 22 Jun 2012

Vancouver home: Market Value $925K; Debt (Mortgage + HELOC) $430K
Coquitlam home: Market Value $650K; Mortgage $560K
Total Market Value: $1.575M
Total Debt: $990K

Classic intergenerational wealth destruction scenario.
An extended family goes from holding fairly safe equity in one home, to leveraged RE speculators.
The parents had the incredible good fortune of holding a home through a housing boom that had increased the home’s market value by $405K. They had the option to realize that $405K after-tax gain but did not take it. One can only surmise how that windfall may have altered their future financial health and their retirement plans. Instead, they decided to leverage the paper gain into more RE.
A 40% drop in housing prices will completely wipe out all the equity this extended family has in RE. And this is by no means an extreme example.
– vreaa

“From my field of cronies I can state that most don’t have defined pensions anymore and are expecting to live off “their equity”, as most of them put it.”

“As an aging individual I feel I can make a purely anecdotal comment on “boomers moving to Vancouver”. From my (limited) field of cronies I can state that most don’t have defined pensions anymore and are expecting to live off “their equity” as most of them put it. The ones that have loaned or gifted their adult children down payment money tend to regret it since that is money that will never be available for lifestyle needs of mom and dad. No one is moving to Vancouver to downsize – they may be moving down here for access to better medical care but that’s about it. As well, many boomers have had to look after their own adult parents and have discovered that elder care is extremely expensive, even getting a part-time caregiver in to help with chores runs about $20.00 per hour. The other fly-in-the-ointment is that many of the boomers parents did downsize and stay in Vancouver so one generation back the family home was sold, mom and dad moved into either an apartment or facility so there is very little equity left to leave to boomer parents, who in turn, will have little left to leave to their children.”
Observer at VREAA 5 Jun 2012 7:57am

“I can add that both my inlaws and a friend’s Boomer parents cared for their elderly family using sales of “the family home” on the West Side of Vancouver. Both are retiring away from Vancouver, because Vancouver is too bloomin’ expensive. My mother will also retire away from Vancouver.”
Absinthe at VREAA 5 Jun 2012 1:13pm

RBC Poll – “45% of British Columbians are relying on selling their home to pay for their retirement.”

“People in B.C. are the least optimistic of Canadians across the country about their retirement, a new poll by RBC found. …
Nearly half — 45 per cent — said they are relying on selling their home to pay for their retirement.”

‘People in B.C. worried about their retirement, poll finds’, The Vancouver Sun, 9 May 2012

As we have been saying…
People in BC are over-dependent on their RE holdings for their future financial well-being.
So, imagine.. you’re 5 or 10 or 15 years from retirement, you’re dependent on the value of your home for your retirement funds, and housing prices start dropping… 10%, 15%, 25%… what do you do?
– vreaa

[Post-script: When you consider that only 70% of BCers own their homes, that 45% figure is massive… assuming the poll was a balanced sample, it means that over 60% of BC home-owners plan to sell their homes for retirement funds!]

Vancouver Investment Adviser On ‘Threat Of Home Ownership’ – “This is my 15th RRSP season. I have never seen so many couples under financial stress. It’s a new form of slavery.”

“This is my 15th RRSP season,” said Ernesto Salvi, an investment adviser with Edward Jones in Vancouver, “I have never seen so many couples under financial stress.”
Couples in their 30s through 50s are having trouble contributing anything at all to their registered retirement savings plan, he said recently in an interview over the phone. And then he talked about how buying a house these days won’t just put you at risk of having to ignore saving for retirement. You might also find that you’re forced to dip into your retirement savings just to get by.

Mr. Salvi has a client who is married with four kids and a house in the suburbs that was purchased a few years ago. Over the previous decade, she had built a small registered retirement savings plan of about $30,000.
In February, Mr. Salvi called this client to remind her about the upcoming RRSP contribution deadline. “She said, ‘You know, I cannot put anything into my RRSP and, by the way, I need to cash it in.’”
Mr. Salvi recalls warning her about the withholding tax that applies to money withdrawn from an RRSP. Her reply was that her RRSP was her last resort. “The sad thing is that it took years to grow that RRSP, and it’s going to be used up in a few months.”

On the surface, it sounds like the house is only part of the problem for this client and her husband. In addition to a large mortgage, they had a heavily used home-equity line of credit, maxed out credit cards and two car loans, Mr. Salvi said.
The house was the killer, though. When you buy a house, you generate wants and needs that weren’t there before. Got a house in the suburbs? Suddenly, you’re a two-car family. Moving up to a house from an apartment? You’ll need furniture, window coverings, carpets, electronics, lawn and yard equipment. Affording it all is easy. Buying a house means you can set up a home-equity line of credit, where you borrow at low interest rates by tapping into the equity in your home. If necessary, credit cards can help you supplement your borrowing.

RRSPs are road kill here. People use them to buy homes through the federal Home Buyers Plan and, as Mr. Salvi’s story shows, they may dip into them again just to get by.
In fact, many of Mr. Salvi’s clients are struggling to cope with the cost of carrying a house and other debts. He sees homeowners who are typically paying as much as $3,000 or more per month in mortgage payments. Not surprisingly, the clients who made lump-sum contributions to their retirement savings this past RRSP season tended to be on the older side.

“All the big cheques came from people over 60,” he said. “It’s the crowd between 30 and 50 that didn’t contribute. Some of them I’ve pushed to do it monthly because it’s easier on their budget. What I didn’t see this year is the extra amount at the end of February.”

Ironically, this is the year the federal government has added to the retirement burden of young adults who are just getting into the housing market. Starting in 2029, they’ll have to be 67 to collect Old Age Security, which right now pays a maximum of $6,481 per year starting at age 65. You need to save more to cover this loss of benefits, or you can stay in the work force for a few extra years. If you buy a home in cities like Vancouver and Toronto, you might just be making an implicit choice to work longer.

Mr. Salvi has seen what happens when people buy houses they can’t really afford and find that debt rules their lives. “It’s a new form of slavery,” he said. “That’s how I see it personally.”

– from ‘The hidden threat of home ownership’, Rob Carrick, Globe and Mail, 9 Apr 2012

Many Vancouver homeowners are over-invested in RE and sorely unprepared for retirement. Home price increases have allowed for debt-driven consumption, over-spending based on wealth-effect, and neglect of non-RE investments. All part of the misallocation of resources that occurs in a speculative mania in housing.
– vreaa

“We live in a penthouse condo purchased for $800K in 2007 which we’d have trouble selling for $600K today. Who cares? I intend to leave here in horizontal mode. This place siphoned off less than a fifth of our estate, in cash.”

“We live in a penthouse condo purchased for $800,000 in 2007 which we’d have trouble selling for $600,000 today. Who cares? I intend to leave here in horizontal mode. This place siphoned off less than a fifth of our estate, in cash. With no mortgage to pay and regular dividends flowing in, we can afford to gaze at the snowcapped coastal mountains and try to invent ways to spend money. Life is good, and we earned it by saving every spare penny during the first half century of our lives. Living below your means is the key to lasting happiness. Debt is slavery.”
David at greater fool.ca 9 Apr 2012 10:16pm

David is correct. Owners in his position should not worry about a possible housing crash.
His net-worth is $4MM, and a 50%-66% drop in his $800K condo (a paper drawdown of $400K-$533K) would only represent a drop of 10%-13% of the value of his assets, and would likely not excessively interfere with his financial wellbeing or comfort in retirement.
His leverage to RE is 0.2, meaning that if RE drops 50%, his total net-worth drops 10%.
He can afford to own a $800K property, should not worry about the RE market, and should simply get on with his life.
But, how many owners in Vancouver are in David’s position? Only a very small minority.
Many longtime owners have ratios close to 1 (meaning that their RE holdings represent most of their net-worth).
And a large number of owners in Vancouver have ratios of >1, and a good percentage have ratios far higher, 3 or 4 or 5, or even 10 or more.
Remember, a young couple buying with 5%-down and no other assets has a ratio of 20. If prices drop just 5%, they lose everything.
This ratio is crucial in estimating the effects of a bust on individuals and on the community.
In a significant housing price collapse, many will see all of their accumulated wealth completely wiped out.
– vreaa

Spot The Speculator #75 – “At the age of 72, she feels poor. Ironically, she has substantial capital, including a house in B.C. and a condo in Austria that together are worth $810K.”

“A retired musician who we’ll call Helga lives in British Columbia. At the age of 72, she feels poor. She has been able to cover her expenses with pension and investment income and by teaching music. Yet she feels trapped, unable to stop teaching and thus unable to retire completely.  Ironically, she has substantial capital, including a house in B.C. and a condo in Austria that together are worth $810,000.
Helga’s income comes from Old Age Security, $540 per month, Canada Pension Plan benefits of $825 per month, Registered Retirement Income Fund distributions of $1,135 per month and teaching violin at $2,500 per month for a total of $5,000.  After tax at an average rate of 20%, she has $4,000 to spend.
“I would like to retire from teaching music at the end of this school year,” Helga explains. “But I need the money it provides. I would like to spend more time in my condo in Austria. I don’t know where to turn.”

– from ‘Impoverished millionaire’ needs to face the music’, Andrew Allentuck, Financial Post, 9 Mar 2012

“Many of my boomer contemporaries think they will “live off the real estate equity” forever.”

“I am a boomer (sold, sadly before the huge boom, and now rent) and can say that many of my contemporaries do indeed think they will “live off the equity” forever. Several of my friends and acquaintances have purchased houses, condos or whatever in places like Vernon or Chemainus, where prices appear cheap, in the hopes of renting them out at Vancouver rents to provide income for a pleasant old age. In every case, when an emergency has come up in one of these far-flung rental properties the costs have skyrocketed and home equity loans or lines of credit have been tapped. When interest rates go up, along with all the other costs associated with owning, these pensionless people will be screwed big-time. The other group of people that should keep bankers up at night are those that took out second or third mortgages to become “property developers” near their own homes. There are several older individuals that I know on the west-side that bought knock-downs for well over $1 million and had houses constructed thinking that they will be able to sell them for a huge profit. Almost every one of the houses I know of is still for sale after hitting the market last year. These are the types that will have to sell at some point or risk losing everything. The other thing that I’ve noticed is the sheer number of empty houses for sale – how long can and will they sit there before the owner/developer hits the wall and is forced to sell?”
Observer at VREAA 19 Feb 2012 at 11:58am

“They asked “How do I know it could go down 3%? In the long term real estate always goes up.” I was angry, and stammered “Fine, you are 72 right now so in the long run you will probably be in a geriatric home. The condo will be liquidated to pay medical bills. Get your cash out now and enjoy it rather than hanging on.”

“The old timers aren’t that keen to cash in, my folks have two places, one in Van and one on the island that they like to visit about once a month. I created a model for them that showed even with a modest 3% decline they are better to sell and take a loss now than hold on and still stay at the empress every weekend amg be ahead. They refused and said they like to open the closet and have their stuff and if things got bad they could rent it out. I next showed them that if they sold now, at a loss, and rented a place over there, they would still be better off and de-risked. Their response was “How do I know it could go down 3%?”. My response was I don’t but Van has dropped more than 10% since the peak and how do they know it is not going to fall”. In the long term real estate always goes up was what I was told. I was angry at this point and stammered fine, you are 72 right now so in the long run you will probably be in a geriatric home and the condo will be liquidated to pay medical bills; I just want you to get your cash out now and enjoy it rather than hanging on.”
YLTN@Work at vancouvercondo.info 10 Jan 2012 at 8:35am

Imagine 10,000 couples in this position.
They find it hard to conceive of substantial price drops.
The market drops 5%, 10%, then 15%. Then 20%.
How do the 10,000 respond? Not all in the same way, of course, but what percentage would, at 20% off, come to market?
– vreaa

“Sounds idyllic, living in a smaller centre with your cashed-in RE wealth but it’s not for anyone who is going to get older and require the care of a health care specialist.”

“My parents left a bigger city for a smaller town in retirement, and took their own parents with them (who were in their 80s). They soon realized that this was a big mistake, because health care in the smaller centres is just not adequate. Sure, you can see a family doctor no problem, but when Grandpa has a heart attack and needs to see a cardiologist regularly, or Grandma is going blind and needs an ophthalmologist, suddenly it becomes clear that driving 2 hours over snowy mountains to get them the care they need is just not feasible. Sounds idyllic, living in a smaller centre with your cashed-in RE wealth but it’s not for anyone who is going to get older and require the care of a health care specialist. And I sure hope my parents leave their smaller city before they get too old (which they are now seriously considering, giving their experiences with my grandparents).”
pricedoutfornow at VREAA 25 Nov 2011 10:43am

RE Price Effects On Grandparents, Daycare, and Working – “My parents thought it would be cool to live near their grandchildren, but that can’t happen at this point in the housing market cycle. Who will look after the kids?”

“It is heartbreakingly cruel, but the retired probably need to learn to love cheaper cities. My parents thought it would be cool to live near their grandchildren, but that can’t happen at this point in the cycle. Unfortunately the cycle may easily take us into their teens, so grandparents and grandchildren alike will miss the most magical people through the most magical period in their lives.
Which begs the question of who will look after the kids while we both work at professional jobs to accumulate enough wealth to de-risk potential home ownership (we can still do that, we’re young). Right now the answer is our awesome home daycare. Her revenue doesn’t cover the cost of her basement-and-garden space, but it’s okay because she bought the place a while ago. She can bleed out her RE gains through years of subsidizing me to go to work. If we lose her we might suddenly have to pay market price for the service. Market price is substandard facilities or care, because they can’t actually charge $2500/month: no one would go to work!”

Zerodown at VREAA 25 Nov 2011 9:34am

Every word wise. – vreaa

Sandy Garossino – “I want to tell two stories from the campaign trail…”

“One of them was a childcare worker in her forties, making less than $11 an hour, caring for children of 3 families in her home on the East Side. Rents are going up but her income is not, and she is being forced out. Despite having a job, she has no security and is hurtling toward disaster.
Another day I was meeting seniors in the west end. A group gathered and were telling me that they spend on average 60-70% of their monthly income on rent. Most had saved for decades for a comfortable retirement, and were now eating into those funds every month just to survive. All of them live with ice in their bones for fear that they will be evicted from apartments they have lived in for decades, and most believe that no landlords will take them because their monthly incomes are so low.
One woman told me that she will be through her savings in three years, and then she doesn’t know where she’ll go or what will happen to her. She worked hard and saved for 47 years, and blinked back tears as she choked on the word ‘homeless’.”

– Sandy Garossino, Independent Candidate in the recent Vancouver civic elections, at her website votesandy.ca 22 Nov 2011

Vancouver – ‘Lazy’? Or Successfully ‘Non-Ambitious’?

Inquiring minds want to know, “What makes Vancouver tick?”.
This interesting exchange recently at RETalks [23 Nov 2011 10:54am onwards]

rofina – “The better we can understand how money flows affect Vancouver, the better we can diagnose the issues. The reality of the matter is that we need to start being proactive in other ways than just hoping for a property crash. … The solutions need to be broader, rather than just focused on asset prices. The most realistic and net beneficial approach is one of bringing high paying jobs here.”

jesse1 – “The only competitive advantage Vancouver seems to have is attracting a subset of people who are willing to work for less than other parts of the country.”

rofina – “This is an interesting topic on its own. It has always puzzled me why Vancouver attracts lazy, non ambitious people. With how expensive it is, and how little nightlife there is you would reckon its not the ideal spot for a lifetime underachiever. Its a bit of conundrum in its own right.”

jesse1 – “In my view it’s not necessarily laziness, it’s a lack of business drive. A friend of mine who worked 10 years in Silicon Valley opined at how unsophisticated the business development climate is in general.”

kramster – “Non ambitious and lazy are not synonymous. Well, non ambitious when it comes to slaving for the man anyway.
Take me for example. I have to do a career development review every year. Each year I put that I don’t want to expand my responsibilities, I don’t want to move up the ladder, I just like it where I am. Because to move up would require me to go on Salary, which means the 200 hours of overtime I work each year would not get banked into time off that I can use to do the thing in life that so many people don’t. The part of your life where you’re actually having one. Not to be confused with the life where people get up and go to work with big ambitions to work harder, make more money, get divorced, get fat, lose touch with their kids, retire, get bored and go back to work and then die of heart disease. It’s an epedemic so widespread people mistake it for being the opposite of lazy. My ambitions exclude those things.
So to counter the lazy argument, and to shed some light on why it may seem that such a subset of society has taken up home here, consider the following. This season I rode my mountain bike 134 days. I went skiing 30 times and ski touring a number of times. What I did not do is go to the doctor, take medication, get sick, miss out on my family, lose touch with my friends, suffer from anxiety, watch my weight, buy something because it made me feel better or make me cool, scream at a stranger in traffic, eat emotionally or get depressed. Before I moved to this part of the world, I lived in a place that oozed all of the above and it was very hard to meet people that didn’t ask what you did for a living before they asked what you did for fun. Here, there are a much greater ratio of people that I can relate to, and they have moved here for the same reasons. To work less and play more. Lazy? You tell me if having a resting heart rate of less then 50 is a sign of laziness, or the product of putting your ambitions in the right places. Sometimes we need a good night’s sleep before we climb a mountain, hence the quiet nightlife compared to places with nothing better to do.”

Question for readers:
Is it possible to have a sustainable, self-sufficient society where everyone lives kramster’s lifestyle?

– vreaa

Spot The Speculators #54 – Couple Early 60’s; Home $750K; Recently Purchased 2nd SFH $1M; Total Net-Worth $950K; Percentage Net-Worth In RE 184%

“This anecdote comes courtesy a family friend. A bit of background is perhaps appropriate here. Family immigrated from Asia over 20 years ago and has amassed equity of about $1MM or so. Couple is in their early 60s. Currently they live in a $750K house with basement suite and have about $400K invested in equities and cash. The house has a $200K VR mortgage.
Last weekend they bought a $1MM 3 year old house which has 4 br up, 3 br down that can be converted to basement suite. They were pre-approved for $800K mortgage. This is based on them renting out part of the house and one of them working. The other is retired.
They are thinking about selling their existing property (they also are thinking about renting it out if they can’t sell for the price they want). Their plan is, when they retire in a few years, to liquidate the other house and pay off their soon-to-be primary residence’s mortgage. They will be collecting a meagre CPP and OAS, and plan to supplement these with rental income from the basement. They simply do not want anything to do with equity/security markets. There is little cash flow to be had for low risk these days, so they claim, and previous attempts to make money through stock/bond markets have produced poor results relative to what their peers have amassed in real estate.
They are also aware of a few friends of theirs who have recently downsized into townhouses/condos from detached dwellings where they were renting out basement suites. It turns out these people were amassing an extra $15-20K per year in undeclared income on their suites that is no longer possible through downsizing and are now ruing the move. So the situation they now face is that they want a way of producing secure income, tax-efficiently — never mind they can get 5-6% tax-efficient divvies — as well as collecting CPP and OAS. They also want the ability to host visiting family in a larger home.
So there’s an ongoing element of hedging going on in this market, where people are concerned another leg-up in prices will render their desired retirement home unattainable. They are doing the maths now where they can, with such a purchase, eke out a retirement in a comfortable and relatively expansive home with some rental income. After this purchase, in a few years, they will have a few hundred K of liquid savings and purchased a $1MM home.
This family will not be living well — relatively little income — but they will be stable and comfortable. They do not *have* to sell, so long as their living/medical/repair expenses remain contained. What’s scary isn’t that this family is so heavily invested in real estate, it’s first that their incomes are low enough they will be relying on OAS despite considerable equity. Second they will be spending very little in the years to come, hardly a boon for the local economy by any stretch. One wonders if Vancouver is prepared for the drop in consumption that could befall an increasingly house-poor city in the coming years.
– jesse, at VREAA, 10 Oct 2011 4:48pm

Couple in early 60’s.
Current home: $750K market value, $200K VR mortgage (plan to sell “in a few years”, but, for foreseeable future, holding.)
Second home: $1 Million market value, $800K mortgage
Other investments: $200K equities/cash ($400k minus $200K downpayment on second home).
Net-worth: $950K
RE being carried: $1.75 Million
Percentage of net-worth in RE: 184%
1. Thanks for the remarkable story, jesse.
2. The couple have 184% of their net-worth in RE at a time in their lives when they should probably have no more than 35%-40% therein. These guys are buying more when they should be scaling down. This act is a bizarre product of the psychological climate regarding RE in this town.
3. If RE prices drop 25%, they lose almost half of their total net-worth; a drop of 50%, and this couple are almost completely wiped out. They likely see the chance of any significant price drops as being non-existent. If they lose 50-100% of their net-worth, they will be emotionally devastated; it will colour the rest of their lives. They will never recover. They are playing with far bigger stakes than they imagine.
[note to fred – that’s ‘stakes’, not ‘steaks’ -ed.]
4. They are speculators; they are speculating heavily that prices will remain strong. But they would likely be shocked and perhaps offended to hear anyone describe them as speculators. They don’t realize it but they are gambling, as sure as if they took their money and went to a casino, and put it all on Red. In fact, a successful professional gambler would likely calculate that the casino option is a better bet than holding this position in Vancouver RE. Professional gamblers understand risk; this couple do not.
– vreaa

Psychologist In Denial – “His house is the sum total of his life’s savings, the thought of it coming down 30% is more than he can stomach. He refuses to read about the US housing crash; he might even deny its existence.”

“People get very defensive about their housing investments. My own father is like that. He refuses to countenance the possibility that housing values will ever decrease in Vancouver. A retired psychologist, he poured just about all his money into his gargantuan home. Given that his house represents the sum total of his life’s savings, the thought of it coming down 30% is more than he can stomach, apparently. He even refuses to read about the housing crash in the US. I suspect he might even deny its existence.”
– Jim at Ben Rabidoux’s ‘The Economic Analyst’, 31 Aug 2011. [Hat-tip to Ben, whose site is a daily must-read for anybody trying to keep up with economic developments in Canada.]

Wow, quite a story.
Illustrative, and also poignant.
Retirees are overly dependent on RE for their financial well-being.
Blind hope is not a good financial planning strategy.
Being a (presumably) intelligent professional is no guarantee that you will be wise with your finances.
There is a strong tendency for people to ‘talk (and act) their book’.
Psychologists are human too.

It is very difficult for most Vancouver owners to apply sensible analysis to the market while past performance, optimistic headlines, rote slogans, BBQ-talk, and their own hope, distracts them.

– vreaa

Retirement Lotto – “Less than 1% of Canadians have a million dollars outside of their homes. But about 50% of all the people living in Vancouver have $1 million in their homes – at least for now.”

“At age 56, they have a net worth of $1.2 million. That’s good. But 96% of it is in one asset – real estate – which in their city (Victoria) is dropping like a stone. “It’s so scary now,” says Irene, “that I have no idea if we can even sell these places, let alone for what the assessment says they’re worth.”
He was a fireman for the full thirty. She still works, but aches to retire. Both are mid-fifties and when she hangs up the clipboard as manager at a small courier company, they’ll be living on his pension of $3,800 a month.
“Not enough,” Irene says. “I wanna travel.” But that’s not going to happen, unless they give up their entire financial plan – which involves owning two side-by-side houses. The one they live in is worth seven hundred. The one they rent out (for peanuts) is worth five. And the sum total of all RSPs, TFSAs and cash stuffed in the orange guy’s shorts is less than $50,000.”

– story relayed by Garth Turner, greaterfool.ca, 29 Aug 2011.

Read the whole article, in which Garth also notes:
– “A 50% decline in that market over the next five years is entirely possible.”
– “Less than 1% of Canadians have a million dollars outside of their homes. But about 50% of all the people living in Vancouver have $1 million in their homes – at least for now.”
– “According to a new survey, half of the population can’t save even $25 a week.”

Bobby adds [30 Aug 2011 1:38am] – “Certainly lots of properties for sale here in Victoria. I see clusters of For Sale signs. I was up to Bear Mountain the other day and there was huge number of homes for sale. Certainly a buyers market.”

Kilby adds [30 Aug 2011 1:01am]“Victoria (including Victoria West) August 23 to 29th. 797 active listings, 23 new sales.” [so MOI about 8 -ed.]

“A poll of Canadians aged 45 to 64 conducted by Environics Research for TD Waterhouse was even more mind-boggling: 32 per cent said they expected a lottery win to support them post-retirement—versus 34 per cent who said they had retirement savings plans with actual dollars in them.”
Macleans, 8 Mar 2011 [hat-tip SophieZombie]

Access to adequate saved retirement funds is relatively uncommon.
Canadians are overdependent on RE for their retirement plans, moreso in Vancouver.
Boomers are going to be trying to cash in their RE lotto tickets; this process has already commenced.
There will not be enough buyers for them to realize their thus-far-paper gains.
Imagining a lotto win is not a million miles from banking on a big RE pay-out.
RE in Vancouver is two to three times overvalued; prices will drop 50%-66% peak to trough.
– vreaa

The Costs Of Inheritance – “Waiting impatiently for loved ones to die so you can use their money. Nice.”

“In 2006, a study showed that about 1.5 million Canadians were relying on their inheritance as the primary source of capital to fund their retirement. On average, Canadians expected to receive a total of $150,600 in cash or cash equivalents, and $151,200 in non-cash inheritance. But in reality, inheritance sums received were significantly less – the average inheritance received that year was $56,000.” [BMO report, July 2009]
“36% of the wealthiest families have received an inheritance; the average amount of that inheritance was $136,000.” [G&M, 8 Nov 2010]

[Following responses to Snats, at VREAA, commenting “Waiting impatiently for loved ones to die so you can use their money. Nice.”]:

“I had a friend from high school with that exact plan – then her brother died and she kicked her inheritance-to-be plan into high gear. She convinced her mother to sell her house and move in with her and her boyfriend. The mother agreed, put the house on the market for about $1.5M (Kitsilano) and after paying off the reverse mortgages and deferred taxes mom had acquired over the years to help out her offspring, daughter realized less than $150,000. This was not exactly the plan the daughter had envisioned but I wonder if that is what is in store for many a baby boomer.”
rmac at VREAA 22 Aug 2011 10:12am

“Yeah, my friend had the same plan until his widowed father remarried a much younger woman who is making sure that she will get the house. His wife’s parents are in care (actually two care facilities) which is costing over $10,000 a month for housing and care. They are paying for their care through their real estate equity.”
Vangirl at VREAA 22 Aug 2011 11:17pm

Behaviour around the issue of inheritance is complicated, even at the best of times. Expectations of inheritance may lead to tension amongst siblings, ambivalence about parents’ longevity (“Waiting impatiently for loved ones to die”), distress about parents spending their money on care (or anything else), and a multitude of possible social shennanigans.
In a time of a speculative mania in housing, when the market value of an average property is so high compared to income that it becomes a life changing lottery win, issues around inheritance become proportionately exaggerated.
In Vancouver, real estate is the largest source of expected future inheritances. -vreaa

‘The Mortgagors With Hands On Their Faces’ – “Extremely poor and rapidly eroding affordability in the Vancouver-area market”, “without a doubt the most stressed in Canada, facing the highest risk of a downturn.”

Above images advertise videos accompanying the Globe and Mail article Vancouver housing affordability ‘rapidly eroding’: RBC‘, 22 Aug 2011 [hat-tip Nemesis]. They are remarkably sorrowful images for a 2011 Canadian housing article, and remind us of ‘The Brokers with Hands On Their Faces Blog’.

Excerpts from the G&M article:

Most Canadian cities offer “reasonably affordable” housing, according to Royal Bank of Canada’s quarterly survey into affordability, but Vancouver is at risk of a downturn.

“Extremely poor and rapidly eroding affordability in the Vancouver-area market is somewhat skewing the national picture.”

“Vancouver’s housing market is without a doubt the most stressed in Canada and is facing the highest risk of a downturn,” Mr. Craig Wright, senior vice-president and chief economist at Royal Bank, said.

This sensible comment at the G&M by PF Murphy, 22 Aug 2011, 10:35am:
“With the average price of a house in Vancouver being 11 times the average annual salary, the RBC’s advisory is many days – like several years – late and shows the conflict of interest of their benignly offering advice in an industry on which they depend for their bloated profits. To think that ill-advised people can go on buying houses that mortgage their grandchildren’s futures is idiotic. It is to be devoutly hoped that this bubble pops soon [so that] some sanity will be restored to housing in Canada.”

“I know a married pair of boomers who lived the good life on borrowed money, and now that neither are working, have been forced to put their still-mortgaged house up for sale.”

“I know a married pair of boomers who lived the good life on borrowed money, did not save and now that neither are working, have been forced to put their house (still a large mortgage on it) for sale and will be looking to buy a much cheaper house. I warned them 10 years ago but they dismissed me as a wet blanket penny pincher. I have no mortgage on my house and when they asked me for a loan, of course I said no (who would be foolish enough to lend money to poor money managers?). They are not talking to me now.”Canuckguy, at moneysense.ca, 17 Aug 2011

Sane Oddballs; More Peripheral Collapse – “It is amazing how common sense thinking is now considered to be contrarian.”

“More and more listings are appearing in Qualicum Beach and surrounding areas – small economy and people are passing on – and their children are selling the houses as they can’t find jobs there – Albertans who bought investment properties are moving back to Alberta as they can’t take the wet weather (not good for their health). I mean really? – who buys a 3-5 bedroom house when they retire? – most are starting to downsize to retirement homes or the few remaining condos. I saw this coming 15 years ago when a 3 – 4 bedroom rancher by the golf course was going for 169K – 249K. A massive building boom took off in Qualicum Beach and this ended one – two years ago. Too many houses not enough retirees with the cash needed to buy – insufficient health facilities, retirees are getting older and selling to move into assisted living quarters in nearby Nanaimo. It is amazing how common sense thinking is now considered to be contrarian thinking, lol. Victoria is seeing more and more houses for rent and just about every house has a basement suite for rent for about $1200/mth. Apartment vacancies are increasing, less students returning to University – if I was them I would stay at home and take courses by correspondence until they can afford to move out. Vancouver mentality – well, you’d have to live there to understand how trendy they believe they are or think they are, bad traffic, bad weather, and you might get caught in the gang cross-fire. Raincouver – it really amazes me that educated people can be so so oblivious to reality, but that’s what herd mentality gets you. … Stupid transcends all generations – sorry but that is a true reality.”
Don at greaterfool.ca 16 Aug 2011 10:37pm

Don is overly down on Vancouver. But we agree with his observation that market developments in recent years have meant that anyone showing common sense is ‘contrarian’. When the herd goes crazy, only the oddballs can be sane. – vreaa

“33% of Canadians between the ages of 55 and 64 have an outstanding mortgage.”

“33 per cent of respondents between the ages of 55 and 64 had an outstanding mortgage.” – from a Canadian Imperial Bank of Commerce survey, as described in the Financial Post/Vancouver Sun, 16 Aug 2011.

Victoria – “But this is my goal. A house by 55.” – “Renting’s the only sane option. But I know from his conversation with me, that ain’t gonna happen.”

Garth Turner at greaterfool.ca 17 Jul 2011 relays this story from Jake in Victoria –
“I just turned 50. I married in 96 and then started thinking about purchasing a house. Should have bought something but had no cash, no down payment, and job wasn’t that good. But then things picked up. Starting saving, had 2 kids, moved to a small rental house.
But in 2001 prices started spiralling out of control, and even though my income and savings increased, I am still chasing the market up. I could rent a much better and bigger house than I could ever buy, so did just that. But I am running out of time.
So if I wait until 2013 or 2015 to buy in, and I could as I have now saved, I will be 54 by then and ready to retire. And every rent payment is going right out the door, I don’t even want to think how much I have spent on rent in the last 15 years, I could have bought 3 houses.
I work for Government, and my pension from BC Pension Corp starts at 55. I have 31,000 in an RESP, and 90,000 in RRSP money, of which 50,000 was destined for the HBP. 5,000 in a TFSA.
Am I screwed as far as owning a 4 BDR House in Victoria? Is it time to throw in the towel on my dream, rent til the kids are gone, and then buy a 76 Winnebago and live off the land?”
“I am not whining about my position in life, I thank God for what I have, I know I am in a better position than some that have shared their stories on the blog,” he said, “but this is my goal. A house by 55.”

GT added this sensible analysis: “Following up, I found his two kids are 11 and 13, his wife doesn’t work, the family income is seventy grand, he’s desperate to retire at 55 and his pension will be $2,800 a month gross. So here is the situation – devoid of emotion.
The average SFH in that city is $630,000. His down payment will max out at $80,000 (with the HBP and cashing in his TFSA plus the rest of his RSPs). That’s 12% down, which means (with closing costs) a mortgage of $562,600. Of course, he can’t risk going variable since rates have nowhere to go but up, so a 4% fiver amortized over 30 years would cost $2,734 a month, and then escalate. With property tax and insurance, that climbs to $3,134.
His pension income, after tax (at 20.6%), would be $2,416 a month. So, carrying the house would take 129% of his income. No food. No gas. No cable TV or new clothes. No car. And only $31,000 in RESPs to help his two kids through a collective eight years of university.
See what I mean? Home ownership’s a dream denied by his own financial reality.
The only hope might be to move to rural New Brunswick, buy a place for $139,000, shoulder a mortgage in retirement, and have zero savings. Or, Jake could rent for 50% of his after-tax pension income, still have money to live, plus $95,000 invested.
If financial security and quality of life are the goal, renting’s the only sane option. But I know from his conversation with me, that ain’t gonna happen.”

Spot The Speculator #49 – “A 48 year old Vancouver tradesman and homeowner I recently met said to me that even though his little shack is now worth $1M, it would not be long before it goes to $3M, or higher.”

chris at greaterfool.ca 11 July 2011 2:25am
“A Vancouver homeowner I recently met, a nice 48 year old tradesman, said to me that even though his little shack is now worth 1 million or so, it would not be long before it goes to 3 million, or higher, as time goes by.
I looked at him in utter disbelief when he said [that] this is the most beautiful city in the world, where you can ski one moment and boat 30 minutes later in the Pacific Ocean. That is pretty much how everyone thinks here; [they believe] that the whole world wants to move here, and therefore prices are only beginning to rise, and will do so forever.”

Yes, there is such an animal as a ‘speculative holder’. Handed a time-sensitive winning lottery ticket, they decide to wait for two more before cashing them in. – vreaa

“I told him that prices were too crazy, and I wasn’t about to spend 7 large on a POS. He says “but just think how much it will be worth in 10 years, probably double or triple”.

Krazy Kanuk at vancouvercondo.info June 29th, 2011 at 12:38 pm
“Speaking to more and more of my friends, I think this bubble is closer to popping. The prevailing mindset (especially here in Van) is that property always goes up. It amazes me, my friends aren’t dumb but the things they believe….
I have a buddy here from France. He’s looking to get his permanent residence. He’s a video game programmer, I suspect makes decent but not fantastic money. He asks me “so have you started looking to buy a place?”. I told him that prices were too crazy, and I wasn’t about to spend 7 large on a POS. He says “but just think how much it will be worth in 10 years, probably double or triple”. So let me get this straight. All I have to do to retire in 10 years is buy a million $ house here. Wait 10 years, sell for $3 million and pocket the $2M as profit. Brilliant! What could go wrong?
Back in Houston I have another friend who “gets it”. He just bought another house. $85K foreclosure, looks only a few years old. Decent part of town. 3 bedrooms 2 bathrooms. Expects to rent it out for $1275 a month. When I tell people here about that, they say “yeah, that’s Houston! Who wants to live there?”. I’ll tell you who. All the Californians who were priced out of Real Estate. Anyhow, I’d take the Texas economy any day over almost anything we have in Canada.”

Boomers Intend To Save, But Don’t Follow Through

Harris/Decima, in a poll conducted for CIBC, interviewed more than 854 Canadians aged 45-64 by phone between May 26 and June 5, 2011 regarding savings patterns this year. [canoe.ca 12 Jul 2011]:
“..nearly one-third of respondents aged 45 to 64 felt they were doing a poor job building their savings so far this year, including 17% who rated their progress as “very poor.” In all, less than half of baby boomers surveyed said they are making good progress in 2011.”

It’d be interesting to know what percentage of those who are not saving are failing to do so because they’re convinced that somehow the value of their home will see them through retirement. – vreaa

Opinion – “Providing for your child’s future means making sacrifices and perhaps taking on risk and debts you would not have imagined yourself doing.”

rusty at VREAA 2 July 2011 at 2:15pm
“What’s your long range plan? Not owning means you have no assets to pass to your children. This is what it’s all about my friend; passing your wealth to your children. Yours will need to leave town and provide for their own future because you’re still pissing your money away on rent and toys. Providing for your child’s future means making sacrifices and perhaps taking on risk and debts you would not have imagined yourself doing. There’s no textbook or UBC course for this – just use common sense…if you’re not passing wealth to your children and others are for theirs, how much of a disadvantage will your kids be at? Take a look around you – those parents that are passing wealth off to their kids today are helping them buy Vancouver homes. And the parents that aren’t? Those kids are moving out of town, or renting or raising their kids in condos. You have the benefit of insight a generation before this happens to your kids.”

Whether you agree with rusty or not, you have to acknowledge that this way of thinking is part of what is driving buying in Vancouver. It is one facet of ‘buy-now-or-be-priced-out-forever’ thinking. Over the last ten years, those who don’t own have not been able to expand their net-worth as rapidly or as easily as their owning peers. It thus seems to many that the only road to wealth and security, for oneself and one’s family, is by owning real estate. It drives new buyers to overextend and overbid, to go into that much more debt than is prudent.
There are no safety brakes: the Governor of the Bank of Canada may occasionally make speeches imploring people to be prudent, but how many hear him, let alone listen? The majority only hear their extended family egging them on to buy, and their bank managers assuring them they are eligible for larger mortgages than they’d themselves imagined.
Built into this line of thought is the premise that prices will continue steadily upwards.
Almost needless to say, we find this line of argument fallacious. It is the kind of thinking that prevails when risk takers have been disproportionately rewarded for more than a decade. It prevails until it stops, and when it does stop, when prices plunge and the great Vancouver RE Debt Deleveraging begins, we’ll see who has actually provided for their future. -vreaa

Spot The Speculators #45 – “They revealed that they had 3 other units in the same area. They were self employed and were banking on their condos as their retirement fund.”

matt at VREAA 19 Jun 2011 5:59pm“I went to view an apartment today which was being showed by the landlords. We got to talking and they revealed that they had 3 other units in the same area. The wife let me know that she and her husband were self employed and were banking on their condos as their retirement fund.”