Financial illiteracy is drawing families into debt

http://telegraphjournal.canadaeast.com/opinion/article/758944


A solid majority (58 per cent) of survey respondents acknowledged that day-to-day living expenses are the main cause for their increasing debt load, with lines of credit and credit cards accounting for most consumer debt - 85 per cent of indebted Canadians reporting carrying outstanding balances on their credit cards, and a somewhat alarming 21 per cent of debtors acknowledging they're in over their heads and no longer solvent. Perhaps even more alarming is that 79 per cent expressed confidence they can manage existing debt well or even take on more.

Most troubling of all, the survey found that one-third of Canadians are not saving any money at all, that one-quarter would be unable to handle an unforeseen expenditure of $5,000, and 1 in 10 would face difficulty in dealing with a modest $500 of unforeseen expense.

This cannot end well. Canadians used to be a nation of savers - not credit-prodigal spenders, socking away 20 per cent of our income annually as recently as the early 1980s. In 1985, the average Canadian still saved 15.8 per cent of his/her take-home pay, providing a safety net that carried the country through economic downturns of the 1987 stock market crash, the early 1990s recession and (temporary) burst of the residential real estate bubble and the late-'90s evaporation of the dot.com bubble.

However, this time we're in far worse shape. By 1995 the average Canadian savings rate fell to 9.2 per cent of after-tax income, by 2003 to just 1.4 per cent, recently falling into negative territory - people spending more on credit than they were earning. No way that could end well.

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Many first time buyers are getting into the market with zero or little down from last many years. They can live paycheck to paycheck due to the record low interest rates. When it comes time to renew in a few years they will be in for a nasty shock.

http://img9.imageshack.us/img9/7637/throwing3.png

"CBC reports-
“U.S. home resales posted the largest monthly increase in at least 10 years last month as first-time buyers rushed to take advantage of a tax credit that expires this fall.”


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Of the increase in US housing sales.

0 - 100K priced houses, sales are up 39%
100k - 200K priced houses, sales are up 9%
250K - 500K priced houses, sales are "DOWN" 6%
500K - 750K priced houses, sales are "DOWN" 9%
750K - 1Mil priced Houses, sales are "DOWN" 11%

The sales for 1 million dollar and over prices are even worse.


Sales are up but only on the houses that are under 200K and the majority are under 100K. What does this tell us?? It should tell that the US consumer is back to a normal, post Bubble buying trend where nobody is willing to pay the silly, irrational prices that once dominated their market. In fact, most of the sales are buyers taking advantage of the US "first time buyer" tax credit. Sort of a "Cash for Clunkers" house version.

So, from this you should be able to see that the rush to overpay for housing in the US is over. It is exactly where we are heading.

http://www.greaterfool.ca/


theglobeandmail.com

http://www.theglobeandmail.com/life/work/living-hand-to-mouth-its-not-just-a-recession-thing/article1287441/



So, this: If 59% of Canadians missed one single paycheque, by a single week, they wouldn’t be able to make ends meet. Worse, half of Canadians can’t even save 5% of their income. Even worse, a majority of our friends and neighbours have no retirement savings and don’t expect to get any.

At the same time, when the Canadian Payroll Association asked folks how much cash they thought they’d need for retirement, 52% of people said between $750K and $3 million.

Said CPA chairman Janice MacLellan “We were shocked… So many Canadians are now living so close to the line that if they miss a single paycheque, the majority will find themselves in financial difficulty.”

Okay, summary: People have assets, but no money. They may lead affluent middle-class lifestyles, but have no savings. They may own houses, but possess no reserves. They may know what they need, but have no way to get there.

Except one.

Now, see the problem?

The concentration of personal wealth in one single asset is a financial timebomb. While Canadians should have at least three months’ worth of cash to live on (and two years would be better), we have two-thirds of the population unable to survive seven days. But that’s just the start of our problems. Fast forward ten or fifteen years, when nine million Boomers are chewing cud and today’s Gen Xers have only a decade and a half to secure their financial futures and you can see the writing on the way. It says, ‘Screwed.’

This is one good reason why entrusting all of your wealth to real estate is a really, really bad idea. By buying houses at the top of the price cycle and taking on lifetime mortgages (what else would you call a 35-year am?), people are pretty much guaranteeing they’ll never be diversified. Even if they do pay down debt, build equity and see rising house prices – adding to their net worth – they’ll still have to convert this into actual money to live on.

Imagine what happens in five years as the mass of the boomers hits 65. Just think about the imbalance of listings over demand that could wash over the country for decade or more as millions of house-rich and cash-poor people scramble to get out. Now contemplate what that’ll do to the value of everybody else’s home.

Rahul i am regular reader of your posts and respect all the research you have done on Real Estate but feel that you are too pesimistic/defensive when it comes to Real Estate.

I hope someday you will buy a house (assuming you dont have one) of your own in Canada and enjoy it with your family....
After all Life is short my friend...........

Keep it up Rahul_singh!

Anyone (at least in Mississauga) who listened to you and postponed his purchase by a year stands to lose about 20K buying same house.

And what to the experts say now....just check the report in Globe and Mail today.....http://www.theglobeandmail.com/report-on-business/housing-market-to-see-significant-growth/article1299678/

(I don't ike copying and pasing the whole piece, however, newspaper links don't work after 15 days unless you have subscription to them. Therefore, the news article is reproduced below)


Virginia Galt

Globe and Mail Update
Last updated on Thursday, Sep. 24, 2009 09:00AM EDT


Canada's housing market has weathered the recession relatively well and now seems poised for “significant growth” in the final quarter of this year, real estate firm Re/Max said Thursday.

“While there may still be some challenges down the road, the worst is definitely behind us in the housing industry,” Elton Ash, executive vice-president of the firm's Western Canada region said in releasing a report on Canadian home sales and prices.

“The bounce-back that began in early spring has made this recession one of the shortest on record for real estate,” the firm said in its report. “Low interest rates, pent-up demand, and improved affordability levels have all played a role in the recovery now under way,” Re/Max said. Here are some highlights from the report:

Vancouver leads the recovery

Sales are 14 per cent ahead of last year's figures for the January to August period at 23,158 units, Re/Max said, with a lot of the activity generated by first-time buyers who were previously priced out of the market.

“Average price – while off 2008's record high – is battling back at $574,061, down a nominal 5 per cent from the previous year.”

Victoria sales were up 7.4 per cent to 5,266 units in the January to August period, with the average price of $466,611 down 5 per cent from the comparable period a year earlier.

Alberta markets crawl back

In Calgary, while concerns about the oil and gas industry still weigh on the market, unit sales are almost on par with 2008 levels, Re/Max said. Year-to-date prices, at $380,489, are 7.5 per cent off last year's pace.

In Edmonton, the market began showing signs of recovery by February. Year-to-date, the number of homes sold is up 6 per cent to 13,691. This year's average price of $319,939 is 5 per cent below last year's prices.

Saskatchewan and Manitoba: Home prices up

In Regina, sales have increased by 5 per cent year over year and average prices are up 6.4 per cent to $244,088.

In Winnipeg, the number of sales has declined, but average prices are up 3.5 per cent year-to-date to $207,006.

Strong sales in Ontario

“Despite dire forecasts for a long and drawn out recession, housing sales have soared in the Greater Toronto area in recent months, with more than 58,000 properties changing hands between January and August 2009. Average Toronto prices are up 0.3 per cent to $385,978.

In Ottawa, unit sales are up 2.5 per cent and the year-to-date average price of $301,684 is up 3.3 per cent from the comparable period in 2008.

Atlantic provinces: Sales and prices up

“Activity has exploded with the success of the oil sector,” driving average prices in St. John's., Nfld. up 18 per cent year-to-date to $203,584, Re/Max said.

In Halifax-Dartmouth, average prices are up 3.5 per cent to $239,633.

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Rajeev Narula, Broker, REALTOR®
ACE TEAM REALTY INC., Brokerage
10 Kingsbridge Garden Circle, Suite 704
(Opp Square One - HWY10/403)
Mississauga, ON L5R 3K6
Bus: 1-888-355-3155 Ext. 300
Fax: 1-888-443-3155
Email:
Web: http://www.RAJEEV.ca" rel="nofollow">LINK

I couldn't care less about every brainless dingo's "expert" opinion on trends in the real estate market. I see a few here like to flood the forum with newspaper articles...bravo!

Personally, I just have to call my real estate agent and request a report of how many houses have been sold around where I live in the recent past - say 3 months - and at what price and how quickly and why...simple. You can take all your newspaper stats and roll it up for it to be useful for something better...

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If you have a gun, you can rob a bank.
If you have a bank, you can rob everyone.
- Bill Maher

Thanks Rajeev.

“Most Americans are home owner in history of America under my administration and this is a great achievement” – President Bush


Owing home is a great thing but it's more like a privilege than rights. A big population does not understand difference between home ownership and mortgage ownership.

Can Real Estate industry publish data that how many people who bought last couple of years paid at least 20% down, 20 year mortgage and their living cost staying within 30%-40% after tax paycheck?

People may be richer in GTA but here in western Canada tons of people are 2 pay checks away from collateral damage forget about RRSP, RESP and personal savings. It seems they are only working for paying mortrage. When layoff happened in USA people are worried about medical but here people are worried about mortgage. Living that kind of life for 30 yrs is no better than bank slavery.

Atleast everyone agrees that this RE bubble is staying because of govt. sponsored low interest rate (sub-prime). How long it can stay….. let see.

Quote:

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Originally posted by Rajeev Narula

Keep it up Rahul_singh!

Anyone (at least in Mississauga) who listened to you and postponed his purchase by a year stands to lose about 20K buying same house.

And what to the experts say now....just check the report in Globe and Mail today.....http://www.theglobeandmail.com/report-on-business/housing-market-to-see-significant-growth/article1299678/