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Originally Posted by csbvan
I hope that it isn't too little too late. Canadians' debt binge, seemingly encouraged by governments to ensure the inflating of an asset bubble, has put this country in such a precarious position in an economic crisis. The use of HELOCs in Canada compared to their more limited use in the US is an eye-opener.
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Agreed. Its not just us though, the First World appears to be built on an addiction to debt. Countries we admire like Sweden, Norway, Denmark, Switzerland have more debt not less. Its actually odd how high our home ownership rate is compared to theirs.
It seems bad at first glance, but also I wonder if everything will be ok? It seems like we keep inflating debt yet getting away with it. And countries that aren't inflating debt are not rewarded for it.
Is something bad if it works? I have friends in Russia and they are doing pretty badly during this pandemic despite having very low household debt. And of course life there is much worse than countries with high household debt.
High household debt may just be a sign of progress. I'm not sure if we should be taking significant actions to decrease it. It seems bad but its hard to argue with results.
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A lot of doom & gloom from the below article by Bloomberg. Whats sad but hilarious is that the CoV's survey says many homeowners can't afford their mortgage or property tax yet their still carrying through the the proposed 7% tax and service fee hike. Can't argue that only foreigners own our RE when Canadian Vancouver residents average much more debt than regular Canadians.
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Once safer than gold, Canadian real estate braces for reckoning
Canadian housing once seemed so infallible that the head of the world’s biggest asset manager in 2015 described Vancouver condos as a better store of wealth than gold.
The coronavirus is putting that theory to the test.
While lockdowns, job losses and uncertainty are roiling property markets from the U.K. to Australia to Hong Kong, Canada’s situation is more precarious than most. As its oil sector shriveled in recent years, Canada’s economy became ever more driven by real estate, an industry now in a state of paralysis. Nearly one in three workers have applied for income support.
What’s more, its households are among the world’s most indebted, poorly placed to weather the storm.
“I think it is the Great Reckoning,” says Douglas Hoyes, a bankruptcy trustee in Kitchener, Ontario. “We’ve been in a period for so long where it didn’t matter what property you bought or how highly leveraged you were. Well, guess what? Now it matters.”...
A ‘Flammable’ Market
The country may not have much of a choice but to prop up housing. Real estate has become Canada’s largest sector. Including residential construction, it accounted for 15 per cent of economic output last year; energy accounted for 9 per cent.
If it collapses, there’s not much that can pick up the slack -- certainly not oil nor the seemingly unflappable consumer.Canadians have been on a two decade spending spree since a downward shift in mortgage rates began in the 1990s. Toronto and Vancouver, the two biggest housing markets, haven’t had a major correction during that time. Housing turned into a wealth-conjuring machine. As values spiraled higher, homeowners felt richer -- they spent more, borrowed more, and sent prices even higher.
That virtuous circle just popped. The City of Vancouver fears it’s heading for insolvency after it surveyed residents and found that 45 per cent of households say they can’t pay their full mortgage next month and a quarter expect to pay less than half of their property tax bills this year...
Today, Canadian households owe $1.76 for every dollar in disposable income. In Vancouver, that spikes to about $2.40 -- a ratio that puts the so-called supercar capital of North America on par with Iceland before the global financial crisis.
Recessions tend to be deeper and last longer when households are mired in debt -- an alarming prospect for a nation that may already be experiencing its sharpest contraction on record. Canadians owe $2.3 trillion in mortgages, credit card, and other consumer debt, about equal to the country’s GDP, which is an even higher ratio than the U.S. had before its housing bust...
For loss-making landlords, things are about to get a lot worse: about 30 per cent of apartment rent due April 1 went uncollected, according to estimates by CIBC Economics. That’s in line with similar estimates of U.S. rental collections.
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My personal opinion that barring any unexpected events, we will be open to reopen our economy and keep mortgage defaults down as long as tenants pay their rent. My only concern is that the government will not push tenants to pay their rent even when everything is open again. If tenants makeup 50% of Vancouver residents but our unemployment rate only went up to 11.5% in April from 4.3% in 2019 then if 30% of tenants aren't paying that means likely a lot of scammers are withholding rent because they can so the longer we cannot threaten to evict them the worse this will get. We're doing a lot better than the US plus we have the $2000 benefit, the $1000 BC benefit, the $500 rental subsidy, and others so our tenant payment numbers should be better, not the same. As forecast, house prices should see a decrease now and an increase in 2021.
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