The Four D’s

New job opportunities, ailing parents, and even “love” can all cause someone to consider moving – but in real estate, the fundamental reasons that people feel forced to sell are known as the four D’s: diapers, divorce, death and debt. The first three life events occur at a fairly constant rate, regardless of the economy. However, debt has risen to record heights – particularly since the great recession in 2007-09. If unemployment, illness or higher interest rates materialize – these high debt levels can end off being high risk.

I know a number of home owners who purchased during the past 5 to 10 years and are now considering selling. They are tired of income being unexpectedly “sucked” into maintaining their houses. Home ownership is more costly and less glamorous than they expected. They are finding themselves house rich and cash poor. These owners are hoping to sell, pay off their debts, and have a little more money left over for the finer pleasures in life. There’s the catch, though. After selling their homes, some of them will have little – if anything – left over. Between the expenses of selling and moving, paying off associated debts (such as HELOCs), these owners may be in no better financial shape that when they purchased their home. In at least one case, they regret having ever bought a house. Perhaps it is just easier to maintain the status quo: carry on paying the mortgage, barely having any money left over, and hoping that sale prices increase (building equity)?

With consumer debt (such as mortgages) having risen to a new record 164.6 per cent of after-tax income … this is where the other three D’s (diapers, divorce and death) can suddenly cause problems. With no spare cash or credit available – how do you deal with unexpected speed bumps in the road of life?

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90 thoughts on “The Four D’s

  1. FYI Dasmo the hotel/restaurant section is by far the most active section on the board going back a week in postings. Most others have a handful of postings with the other most active being general labor, part time jobs and a couple of others with a dozen maybe in the past 10 days. Thanks for coming out tho.

  2. Thanks for counting them all up for me but I was looking at the Oct 9th postings which your link took me to. You never mentioned any particular timeline.

  3. Out of 2500 listings
    243 are for cooks
    128 are for servers
    103 or for hotel
    So less than 20% of the listings.
    I guess this constitutes “most” in a world of dead cats…

  4. The biggest obstacle to fighting money laundering, that didn’t involve drugs, was the cost of prosecuting.

    That impediment, as of 01-September-2015, is gone. Canada and China will now split the proceeds in the sale of assets. There is now a monetary reason to investigate all cash transactions. That also has implications for Capital Gains tax when a straw buyer is involved. It will also document information on the major players assisting these activities such as estate agents and law firms.

    Potentially hundred of millions of dollars.

    And BC doesn’t get a penny.
    .

  5. For some industries it’s simply a matter of changing the employees to subcontractors. No more CPP or EI deductions. The “subcontractor” would now be responsible for all of their own expenses including taxes. This allowed the original company owner to increase volume by lowering prices and the subcontractor might be put in the position of making less than minimum wage.

    With a lot more people working from home, the difference between an employee and a subcontractor gets fuzzy.

  6. Surprisingly there are more listings for hotel/cooks/server jobs than in any of the other categories. Usually slows down this time of year but tourists probably keeping things extended. Lots of people I know with the Feds worried about job cuts, especially with a potential strike looming after the election.

  7. The G and M article I mentioned above (not online unfortunately) said there 200,000 millionaire investor immigrants who had bought property in Vancouver, i.e., most of the decent houses. Is it the same in Victoria?

  8. Why can’t we have an open and transparent real estate record system like the USA ? Oh right, the Canadian real estate cartel would not approve of allowing the public to see what really is going on.

    Chinese all-cash buyers of U.S. homes have tripled since 2005

    OB Jacobi, president of Windermere Real Estate, a real-estate broker in Seattle, said that Chinese buyers account for almost half of all real estate activity in Seattle’s most expensive neighborhoods and says more than three-quarters of the real estate deals there are for cash.

    http://www.marketwatch.com/story/chinese-all-cash-buyers-of-us-homes-have-tripled-since-2005-2015-10-09?siteid=nwtpm

  9. No, I’m not saying there should be no standard.

    If you look above I spelled it out what the options were: either (1) no minimum wage but a negative tax that insures that the lowest paid receive a living wage; or (2) a minimum wage plus wage subsidies auctioned by the government to the highest bidder. So, for example, in the latter case, if the minimum wage is $10.00, and an employer makes a successful bid of $5.00 per hour for a wage subsidy, then he pays $5.00 an hour and CRA makes that up to $10.00. Either way, people with limited work skills get a job at a living wage and an opportunity to improve the work skills; the employer gets cheap labor with which to grow a business; and the government gets to avoid a lot of welfare bills — and it all works within a market system to maximize efficiency.

  10. So that vulnerable individuals, such as new immigrants and youths, are not exploited. Same reason there is a minimum age to work and maximum hours of work and minimum break times.

    Minimum standards are necessary to regulate working conditions and protect workers from potentially unscrupulous employers.

    The only thing debated here by me is what the minimum standard should be. I don’t think anyone agrees that there should be no standards unless CS is trying to state that there should be no minimum? I wouldn’t agree.

    If you view the current minimum wage as exploitative then you might want to raise the standard.

    I don’t. Minimum wage has kept pace with inflation over the past 40 years and has been raised fairly recently. It is consistent with the provincial wages across Canada and low income Canadians are able to access other services and support.

    I’d argue that maybe there should be more services and support to permit those who are family breadwinners make ends meet or obtain higher paying employment.

  11. why have a minimum wage?

    To maintain the unemployment rate, which drives the crime rate, the mental illness rate, and creates lots of well paid public sector jobs picking up the pieces.

  12. Yes, this is the correct approach and could be done systematically with a negative tax system.

    Alternatively, you could keep the minimum wage, and even raise it, while creating a job subsidy program under which subsidies would be auctioned by the Federal Government to the highest bidder, the number of subsidies offered depending on the unemployment rate.

    Either approach would create a source of cheap, relatively low-skilled labor, which would enable Canadian companies to better compete with Asian sweatshop labor, while provide low-skilled workers workplace experience by which to improve their skills and hence employability.

  13. Absolutely. But it’s the confirmation bias that maintains the tension that keeps the conversation going! Without it, we’d just accept that prices may go up or they may go down and nobody really has a clear idea of which it may be so what’s the use of arguing — end of blog. As it is, we get all this research to support preconceived positions, form which we may get a hazy notion about what’s coming next.

  14. Raising the minimum wage would simply deny work to those whose labor is worth less than the newly increased minimum wage.

    Since in the Victoria core, the land on which most houses stand is worth several times as much as the house itself, house prices could be reduced by increasing the availability of building sites, which could be achieved by changing rules on subdivision. But in Oak Bay, it seems, the policy is to prevent subdivision to encourage the construction of MacMansions, which is nice for those wanting a MacMansion in the Uplands or surroundings, but it keeps up the price of a lot. if Minimum lot sizes were reduced prices of new houses would surely decline.

  15. Well a 15% tax as in Hong Kong and Singapore would certainly make RE less attractive as an investment, so it should lessen demand.

  16. Where do you find the breakdown of employment for different industries for Victoria ? I don’t see it on the Stats Canada page. The typical increases are in the low paying tourism industries.

  17. The number of full-time employed went up 10,600 from last month (part-timers up too). I guess to a bear that’s “barely” 😉

  18. The number employed barely moved from last month so more people and no more jobs. Spin that…

  19. And? The solution is not raising minimum wage but understanding why and if there are unfair impacts implementing policy to support training.

    A number of women I know work at minimum wage or slightly above jobs PT once their kids are in school. There is a low level of responsibility and a high degree of flexibility. I don’t know any men doing this.

    I think it is an issue if there are a significant number of women more than men as family breadwinners on minimum wage. Existing programs should be canvassed and if there is more support needed to rectify this it should be done.

    An across the board 50% minimum wage increase is just not the answer imo.

  20. Yes, but there are a range of jobs that are seasonal or real entry-level with a chance to work from minimum to more or learn a basic work set for youth. As you know, the government did away with the training wage for youth as it did not work and yet you are proposing reinstating it.

    If you have a business and want or need to retain workers longer you will already have to pay more than minimum. We don’t need government to legislate this, market forces make it so.

  21. I assume that this information is derived from employers filling out the TD1 forms for new employees. The form doesn’t ask if this is a newly created position or if the employer is replacing someone that has quit or retired. Neither does it ask if they have recently moved to BC.

  22. I would agree to not raise it for youth. easy to make an age distinction in minimum wage laws….

  23. Simply cause so many people are moving here… no matter how you slice it 57,200 new full-time is impressive compared to other provinces.

  24. This stuff gets confusing with everyone trying to spin numbers.

    You learn quickly in your career that you present to your audience. You tell the audience what they want to hear. Then you’re a hero and get asked to speak again.

    If you’re presenting to funeral directors you don’t mention how Canadians are living longer. It’s bad for business.

  25. B.C.’s unemployment rate slips lower than Alberta’s for first time in decades
    https://www.biv.com/article/2015/10/bcs-unemployment-rate-slips-lower-albertas-first-t/

    “In the 12 months to September, the province managed to add 46,700 jobs, with more than 57,200 full-time positions more than offsetting a loss of just over 10,500 part-time jobs.”

    For comparison, that’s 3.2% y/o/y growth in full-time jobs while next up Ontario only had 1.3% growth.

  26. I doubt it. About half of minimum wage workers are youth, many of whom are living at home. A lot more are PT workers supplementing family income. I’m not in favour of raising wages for entry level and youth employees who have other support in place.

    I don’t see how allocating more income tax revenue to more targeted programming for those living in poverty hurts business in particular. It may be a reallocation of existing priorities or it may mean a slight tax increase for higher income earners. Seems like a social equality issue best addressed by social programming to me.

    I’d have to research, this but I think affordable housing and training on an income-tested scale with criteria such as dependents does a lot more for those with the most need than raising the wages of teenagers. If it becomes more attractive for folks earning min wage to be on social assistance there is a problem.

  27. My understanding is that a 50% wage increase will not likely play out just as consumer price increases.

    Consumers don’t want to pay more and they do choose by price so there is a strong incentive for employers to cut hours and reduce increases to remain competitive. Not to mention when prices rise consumers tend to spend less on the service or good – eating in more perhaps

    I agree with increases correlated with inflation and support programs. Just a different view based on a past personal understanding of the economics of running a mom and pop restaurant.

    http://www.forbes.com/sites/timworstall/2015/08/11/wendys-explains-what-really-happens-with-a-minimum-wage-rise-job-losses/

    http://www.forbes.com/sites/timworstall/2015/07/31/yes-minimum-wage-rises-do-cost-jobs-why-do-you-ask/

  28. But raising taxes to pay for the administration of more support systems for the needy also hurts small businesses…. There might simply be less needy if the minimum wage was raised.

  29. Yes, just disagree.

    I support directing benefits to those with demonstrated need and believe this should be something that tax dollars contribute to rather than placing the burden on employers.

    The training wage was scrapped for a reason, it was unfair and created a second class of workers and it was rarely used. I doubt non-profits or any business is going to be able to attract workers at a less than minimum wage.

    http://www.vancourier.com/news/wage-war-1.376809

  30. “special provisions and applications to pay less. Youth, non profits, apprentice programs etc.”

  31. Agree. I was looking at the 2009 stats. The number rose after the last round of increases across Canada and BC in 2011 which ended up capturing more folks as minimum wage earners. BC is now at 6.4%.

    I’m fine if you support a 15/minimum. I just disagree. My teenager living at home has few expenses and needs job experience. I think minimum is adequate for him and I’d hate to see small businesses close down. A 50% increase in wages won’t translate into a 2% increase in your coffee at the local coffee shop. Depending on the business payroll accounts for 20%-50% of overhead.

    And Costco is not a small business. The model requires huge capital outlay and it is a large corporate model. Maybe one day big box and online will be all that is left and the economies of scale and lower overhead will result in increased wages in retail. Right now small businesses have enough challenges imo. And no, I don’t own a small business or pay minimum wage to anyone..

    It makes more sense to me to not pass the burden on to the employer or pay additional taxable income beyond inflation adjusting. I’d rather taxpayer money be put in to services for those who are working minimum wage and living independently with or without dependents. Affordable housing and job training is where I’d put the money.

  32. really the ones who are employing most of the minimum wage workers. The majority are large companies with over 100 employees, some of these are very large corporations.

    Raise it $1 a year for five years and then track inflation.

  33. More than one million workers, or 6.7 per cent of Canada’s workforce, toil at the minimum wage levels set by various provinces, according to 2014 Statistics Canada data.

  34. But you said only 2.3% are paid minimum wage? It should be $15 with special provisions and applications to pay less. Youth, non profits, apprentice programs etc. The CPI has been suppressed far to long to simply match inflation. There is some catching up to do…. Sorry, your coffee might cost $.10 more making it $4.50….
    Costco pays twice the minimum wage and they do rather well….

  35. Not quite. 93% of minimum wage employers are in the service sector, most of them going to school and living at home. Most small business owners in other sectors pay more.

    Many of the restaurant workers are compensated with tips in addition to wages.

    If you want to affect a whole segment of the economy raise minimum wage above inflation. It will likely result in lay-offs and business shut-downs which will increase the unemployment rate for youths and new immigrants.

    Inflation is a fair measure and for those who are not students living at home we should have affordable housing and other measures t available to assist imo. Especially if there are children. I believe many of these measures do exist but maybe they can be improved.

    http://www.statcan.gc.ca/pub/75-001-x/10304/6824-eng.htm

  36. You can’t compare pre-sale recession period to re-sales.

    In pre-sales you have a large corporation that is familiar with real estate dealings (the developer) and the average Joe going into the showroom (only 30% of average Joe’s use a realtor to help them buy a pre-sale) which equates to 70% of the time you have developer vs non-represented buyer. There is a need for a recession period.

    In re-sale you have average Joe (represented by realtor 95 plus % of the time) and the average Joe (represented by DIFFERENT realtor 90 plus % of the time).

    You would be shocked how many people offer and then walk way for various no legit reasons because they can and you can’t vet for someone walking away because of cold feet.

    Your rational is the buyer should be able to walk away because of cold feet within a 10 day period; however, this screws over the average Joe seller as they could have lost a real buyer that was willing and able to make an unconditional offer but couldn’t because of the recession period.

    Basically by instituting a cool off period you harm the seller and you harm those that are financially well off (don’t need to have a financing subject) just to protect a few irrational consumers.

    I listed a house earlier this year for 699k. We end up with two offers both conditional for 718k and 730k. 730k offer has only one condition so seller goes with that. After 10 days and cancelling over 20 showings the buyer pulls out because of inspection and provides no reason (they don’t have to). We hire an inspector and the house is a 9.5/10 for that vintage. The 718k offer ends up with an accepted offer on another property. We lose a ton of momentum, end up spending $500 on an inspection, and eventually sell for 690k. Conditional offers (or basically a 10 day cooling period) can really screw the seller over.

    I also had a seller this year take 20k less for an unconditional offer vs competing conditional offer because we had an accepted offer on a subsequent home they wanted to buy. If had to wait 10 days they would have lost the other home.

    I can tell you from real life experience unconditional offers definitely have a place. Your veting buyers point is great in theory doesn’t work like that in real life.

  37. And I actually agree with you JJ. Higher PTT on high-end homes is unlikely to have any trickle-down effect although it would definitely raise provincial revenues. I can see this being pushed through though!

  38. You can run the numbers with different assumptions – I used our numbers and situation – some of the numbers might be a bit dated now ie. care cost for a five year old after tax – we needed some coverage because kindergarten was half day back then – isn’t it full ay now?

    Our situation was that our income increased over time so our position improved. Many homeowners, likely the majority if we look at the stats, experience the same over the course of their home ownership.

    If you have student loans or a car loan your mortgage qualification will be impacted and you’d have to adjust that number from the start.

    As for camps, they are tax deductible but I agree you can easily spend $600-$800 a month per child for summer camp. After tax it’ll be less but maybe you don’t contribute to the RESP or TFSA in these months. Sometimes we spent this much, but we usually took holiday time off in the summer to spend time with the kids.

    Our kids are all old enough not to need care anymore. We spend money on lessons and sports but it is much less than what early years cost if you have to pay for ft care.

    Of the four Ds only divorce is out of your control many times and something that can wipe you out. You can get life insurance, plan for kids and avoid bad debt like the plague. No-one is forcing you to buy stuff.

    I really have a lot of sympathy for divorced parents and people going through divorce. So tough. No matter what way you look at the numbers it is really hard for a while and it can derail all sorts of things including home ownership and happiness.

  39. … I agree it shouldn’t be so much about a skill of timing, but then our entire education system fails our youth on so many business levels, not just the psychology of investing…..

    Apparently if the planets align – it is possible for you and I to completely agree. 😉

    I think that there should be a mandatory course at high school (required for graduation) called “Personal Finance 101”. It should teach all about credit records and ratings, loans, investments and tax shelters (TFSA’s RRSP’s, etc.).

    Most importantly, it should cover the topic of compound interest.
    Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.
    ― Albert Einstein

  40. The word affordable has a different meaning when it comes to real estate.

    When I remark that’s an affordable car. I mean less expensive. That’s not the same as in real estate.

    If you’re suggesting that the government make housing less expensive – the government can’t do that and I don’t think they have the will to do so.

    Mike De Jong and the government make the mistake of considering equity the same as cash. That’s intentional as they want people to use their equity just like cash by borrowing and spending it.

    While cash is an asset, equity is a claim against an asset. Its what’s left after you subtract the debt from the asset. They are not the same. No economic professor would ever make the mistake of calling equity an asset.

    Foreign investment is good for BC. If the investment is put to productive uses. Parking the money in empty houses and condos isn’t a productive use. Instead it creates a shortage of housing raising both prices and rents.

    The solution doesn’t involve density when we are building the wrong type of homes. We’re destroying single family homes to build high rise micro suites driving families out of the downtown and encouraging speculators within. Building smaller and smaller units in the guise of affordability. Condos that will have negligible appeal during a housing recession.

  41. I’m not sure about that. Only 2.3% of workers earned minimum wage in BC in 2009 (statcan stat – not sure about more recent). More than half are under 19. This leaves about 1.15% of adults impacted. Of these I’m not sure how many are restaurant workers earning tips.

    Of the remainder, after tax they’d probably be much better off with access to affordable housing like many of the co-ops around town that are rent geared to income.

    Raising the minimum wage is not that much of a bonus after taxes and it can be hard on small business owners. I’d rather see taxpayers pay for programs to assist those working at minimum wage than small businesses although I agree minimum wage needs to keep place with inflation.

    http://www.statcan.gc.ca/pub/75-001-x/tables-tableaux/topics-sujets/minimumwage-salaireminimum/2009/tbl02-eng.htm

  42. I have noticed that the bears and bulls in this blog often suffer from confirmation bias: putting more weight into the opinions of those who agree with you then those that don’t. People who suffer from this often look for research that supported their thesis instead of seeking out information that may poke holes in their opinion.

    Investing Bias

  43. @totoro

    Great job crunching the numbers, but there are lots of assumptions: child care for $650/month (average is closer to $900), reliable older car with no loan, no public transit expense, 3/4 time job perfectly matching school schedule (very rare!), summer camps $200/month (more like per week), no vacation expenses – ever. What about pre-existing debt, even “legitimate” debt such a student loans?

    Bottom line is that things could be really tight for the average income earner with an average mortgage. Any of the four D’s could quickly destabilize their financial foundation.

  44. 10 days isn’t a hardship on anyone. This is a good thing for your industry that would elevate the level of professionalism and reduce the number of law suits.

    It hasn’t seemed to hurt the sales of pre-construction condos.

    Firstly, there wouldn’t be a choice between the two offers. Both would be equal.

    A non serious offer? Learn to vet your buyers better. You can always advise the seller on who or who isn’t a serious offer. And there is nothing precluding you from taking a back up offer that can run concurrently with the first offer.

    It will take most buyers most of those 10 days just to secure financing and get a building inspection. It would be imprudent for you to suggest that your client not have any offer subject to financing or a building inspection. It may even grounds for a law suit.

    All I’m suggesting is making a level playing field for all buyers – and all estate agents presenting offers.

  45. We didn’t eat out ten years ago because we couldn’t afford it. I enjoy cooking a lot. This and gardening are my main hobbies so that worked for us. I’ll bet most of us had grandparents that lived this way and were fine with it. Thank god for dishwashers though.

    We can afford to eat out now and we do, mostly as a couple. We do take out once in a while too. Too much and it loses its appeal. If you are close to the financial edge it is a pretty easy thing to cut and no loss of fun for us. Our kids don’t care about eating out at all.

    A mini-van and a walkable area close to schools plus working from home was plenty at the time. We do have two vehicles now. Couldn’t have afforded two before. I’d prefer one but won’t happen for a while.

    Needing to replace a vehicle happens. We knew our old vehicle wouldn’t last forever and had saved.

    I can’t spend my life worrying about a real estate crash. I can make the best decision I can and plan for the worst. We’ll be fine, but thanks for thinking about this for us.

    I don’t think I’ve ever said I thought everyone would be fine if rates increased. We have a ten-year term on our mortgage because I worried about that. Probably a bit foolish in hindsight given the stats.

  46. How can the government make housing more affordable? If the they were serious about making things better for the common folk they would simply raise minimum wage…

  47. There is absolutely no need for a cool off period to protect 10% of irrational consumers. Throws the entire market out of whack and you penalize everyone else that is rational. If my dream building lot/house/etc., came up why shouldn’t I be able to write an unconditional offer? A lot of listing these days are scanned for oil tanks, etc., before they hit the market to accomodate unconditional offers (by decreasing the big risks).

    Why should I have my serious unconditional offer placed in front of the seller on the same playing field with the cool off period as some other non-serious buyer?

    Have a problem with biddings wars? Pretty simple, don’t participate and don’t make unconditional offers. Avoiding Oak Bay, Fairfield, and Gordon Head also helps. Can’t be any easier than that.

    No one holds a gun and forces you to bid on a house and with 3,200 listings on the market pretty sure your family isn’t going to suffer having to settle for one of the other 3,199 listings.

  48. I actually disagree with this. This is a money grab not a solution. It will not lower the price of homes.

  49. Just saw a hard copy of the Globe and Mail, which has a front page story headed “High home prices have easy fix: expert”.

    The expert in question is UBC Prof David Ley who advocates increasing the property transfer tax on high end homes, which, he says would have a trickle-down effect.

    Moreover, Mike de Jong, BC Fin Min says that the Province is looking at “doing just that.”

    So watch out housing bulls, the government’s got you in their gun sights.

  50. In most of the cities across Canada there has been a substantial increase in the volume of sales. This is good for Canada as it keeps our economy chugging along. If we want this to continue then all of us should be doing our share of encouraging as many prospective buyers and preferably first time buyers to purchase real estate.

    We can start, by putting real estate agents cards inside children’s lunch boxes. They can trade them at school like hockey cards. Because you are never too young to start thinking of your financial future.

    So buy a home – and take one for the team

  51. The top is definitely in now, that is pathetic how low these developers are going. I hope the new government puts an end to this bullshit. With a name like “Slutsky” what could go wrong ?

  52. Oops… should be “thrifty spender” but you get my drift. How about when the tranny blows on the older car. There’s a couple of grand or usually not worth it being older,so have to buy a new car at $10,000 for something safe for the family. Most families need 2 cars with 4 kids but whatever.

    Never eating makes you sound like “no fun mom” but that’s your choice, most do eat out to treat themselves from slaves to the kitchen.

    Since you have never experienced a true market crash I don’t think you are in a position being highly leveraged to say all will be OK if prices tanked and rates move back to reality. Bankers aren’t so friendly when things go south. Millions just lost their homes in the US and went bankrupt trying to be Trump wannabees.

  53. We can run those numbers.

    We know the housing cost is approx. $2400 a month including regular maintenance, property taxes and insurance, but we’ll up it to $3000/month to include utilities and internet and some room for a few minor upgrades and some gardening supplies.

    Let’s say one spouse earns $45,000 and the other $40,000 with two kids, one five and one ten.

    Monthly CCTB will be $658.07. Childcare for the under six cancels out the CCTB.
    Net income on $45000 is $37,966 with no RRSP contribution.
    Net income on $40000 is approx. $36,000 with no RRSP contribution but claiming dependents and child care expenses. This spouse is working 3/4 time so they can look after the kids after school and during breaks.

    The family has net $6163 to live on. Minus housing costs they are left with $3163 to live on each month.

    With $3163 they:

    1. pay $800/month for food and toiletries and don’t eat out but entertain at home and at friend’s houses
    2. operate one older car with no loan only at a cost of $300/month
    3. gifts $100/month
    4. other spending (clothes, recreation, furnishings) $300/month
    5. RESP $500/month
    6. cell phones $100/month
    7. disability and life insurance $140/month
    8. charity $150/month
    9. lessons/camps for children $200/month
    9. $573/month remaining allocated to an emergency/discretionary fund in a TFSA

    If you run into hard times you stop the $650 a month to RESP and charity and access your TFSA.

    If you don’t want to contribute to charity add the $150 back and allocate it where you wish. Cut back on the RESP or TFSA if you want to increase activities for the kids. Vacations are staycations or camping.

  54. 2.9 is terrible. You should talk to a borker broker or your bank and see about a blend and extend or something

  55. Welcome to the blog, Walter. You have a house that is valued below the average in Victoria, but you enjoy a much higher that average family income. (Your family income puts you in the top 15% of earners in Canada.) That’s great for you as I expect that your financial worries are few and far between.

    Imagine living in the same house but earning the average Victoria family income of ~ $85,000. How comfortable would you be then?

    http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil107a-eng.htm

  56. “forced to overpay”

    Will you still feel that way when today’s prices seem cheap in a few years? I suppose you could wait until the next bottom, but it’s typically 10 up then 4 down, so that would put us around 2027 (2013 + 14 yrs). The problem with waiting until the next bottom (assuming you’re able to buy when you see magazine covers like the one below) is history shows prices then will be at least double what they are today. There are only 3 certainties in life are death, taxes & inflation.

  57. Spendthrift: “a person who spends money in an extravagant, irresponsible way”. There are plenty of blogs on how to live well on less if that is what you mean.

    A drop in the market and having to sell is a risk. You can plan for most but not all things. There is risk in all investments.

    Having to come up with 100K in a negative equity situation seems highly improbable to me.

    Having difficulty getting a mortgage renewal if you no longer have the income to support the renewal and negative equity might be a more realistic risk. Prices would have to drop very significantly to put most homeowners in a negative equity position.

  58. Who said the person putting down 40% is thinking prices will fall ? It was a theoretical scenario based on affordability to have cash left over for those extras in life people enjoy and don’t have scrutinize every penny. A drop in future prices is a realistic risk buying into a hot market.

    You should start your own blog on being a spendthrift just to own a house. Home ownership is not a guarantee of financial security, it depends on many other factors. Ask that guy from Bear Mountain who lost the $700K or those who bought the condos with the leakers for $100K.

    Bankers do indeed ask for more money when negative equity situations arise and you have to renew. You just don’t read about them on here publicizing their financial laundry. Maybe you will find out down the road.

  59. If BC didn’t have these loopholes for tax avoidance would BC be less attractive to money laundering? I think it would be. Any investigation into alleged money laundering is going to be hampered by provincial legislation that protects the reporting of income with numbered companies and straw buyers.

    If there was a Canadian mortgage on the property, then a lot of these same practices would be considered mortgage fraud. Or if some of the money was shown to be directed at the drug trade, then the property may be seized under our federal laws and considered gains from money laundering.

    BC isn’t going after this kind of money laundering – the federal government is. And the only reason why the feds are going to be more active is because they have signed an agreement on how to split the proceeds of the property seizures with China retroactive to 2012. That could mean billions in revenue.

  60. If you have 40% down and believe prices will fall you’re likely better off waiting as you’ll benefit more than someone with 5% down will from a decline. Particularly if the decline is related to an increase in interest rates.

    Why are people scrooges if they want to “pull off” home ownership on a limited budget? Seems like a negative spin on the positive result of getting ahead to me. The snowball of improving your financial position has a cold hard start but it pays off if you keep at it. Plus it is just reality for those of us who started from nothing.

    And Kraft dinner is no bargain – you can eat healthy on a very limited budget: http://www.budgetbytes.com/

    Expensive hobbies can go on hold until you have the money for them. Or choose a less expensive hobby.

    Reining in spending is pretty easy to do if you have a goal you and your spouse agree on and quality of life can be high: http://www.mrmoneymustache.com/2012/06/01/raising-a-family-on-under-2000-per-year/

    What banker is going to require a $100,000 payment all of a sudden. That is not a term permitted in mortgage financing in Canada as far as I know. Baseless fear-mongering. Banks and lenders make money by keeping their customers making payments, not through forcing sales in hard times.

    Home ownership might not make sense for many families. Particularly if you are happy living in a rental that is much less expensive than what you would buy (ie. nice apartment or townhouse vs. whole house) and you invest the difference.

    We lived in family housing at UVic and I would have been willing to stay there indefinitely for the great value, neighbours and amenities. Unfortunately not an option.

  61. “People with bad timing often never fully recover while the person who buys when nobody else is, gets an enormous headstart”

    Exactly Michael, glad you have come around to reality. Why buy when everyone else is falling all over themselves and debt levels and house sales are at record levels at lowest rates in history ? Timing is indeed everything, why buy when the shelves are bare and are forced to overpay by upwards of tens of thousands ?

    It doesn’t make any financial sense to me unless you have 40% down payment and can stomach a potential 20% plus decline when things go south as they always due every decade.

    Not sure those who are highly leveraged playing landlord are prime examples of the average homeowner. If the market turns ugly, how will things play out when the banker says cough up a $100K and then we’ll talk ? Don’t think it can’t happen as it has in the past corrections and the recent US collapse.

    We live in a consumer society now and usually one half of every couple loves to spend more than the other or both have expensive hobbies or have children in multiple sports/activities that cost a lot of money, especially if the child excels to a high level. It’s very easy to get credit and very easy to lose control. I remember getting a hundred bucked to death as a homeowner. Something is always breaking down or needs repair or upgrade, as well as the kids day to day costs.

    If you’re a scrooge you can probably pull it off eating Kraft dinner and buying clothes at the bargain bins but is that how most people really want to live just to say they own a house ? As David has posted, there are many out there who have seen the luster and fantasy of home ownership fade and become a ball and chain. I bet there are thousands more in this town who won’t publicly admit it.

    Then there are those who are in unhappy marriages and the house is the only thing preventing the divorce. I know many of those, but that’s another post. 😉

  62. Thanks Walter.

    So your mortgage payment is around $1950 and your remaining principal is around $440,000? You likely have costs of ownership (property tax, insurance, maintenance) that bring you fairly close to $2400 like a rental would be?

    If you sold you would have equity of $160,000 tax exempt, minus your costs of improvement and down payment, so around $55,000? And minus another $10,000 for costs of selling using a service like Marko’s and maybe another $9000 for the cost of purchasing? Down to $36,000 net less LOC on your initial $25,000, whatever that would have been. My guess is not that much if you were saving for a down payment and not investing it for the long-term. Not sure about the LOC on the $80,000 in renos but that needs to be accounted for too.

    Seems like if you sold you’d end up with about $61,000 in your pocket? You’d be ahead of having rented even adjusting for LOC on the amounts you have invested in the home and there are no savings to be had by renting a similar home in the neighbourhood if that was the alternative.

    How are you estimating the market value of your home? Were the renovations the type that don’t increase value much like new roofs and drain tiles? Or were they something that increases market? If so, you might have a greater current market value than $600,000 given this year’s appreciation in the Victoria core.

    In any event, at your income level owning a home is affordable and it has made financial sense plus you do seem to value ownership despite the work to be done.

    If homes continue to appreciate a bit more over the next year your gains will increase significantly. A crash and the opposite is true, but you don’t have to sell. You are vulnerable to interest rate increases like all of us with larger mortgages are, but your income level can carry a higher rate.

  63. Purchased the house in 2009 for 500k, spent 80k in renos and there’s still a lot of work to be done. Originally a 35 year mortgage with 5% down and currently at 2.9% fixed. 50k in consumer debt and 180k household income. Two young kids and we love the neighbourhood and want to stay. Similar rentals in the area are in the 2400/month range when available. Current house value around 600k.

  64. Interesting article but not about money laundering. Its about tax avoidance…. money laundering is not even mentioned…

  65. I bought in 2012 and 2003. Renting both places out and renting a pad here in Rotterdam. Would I buy here Hell no!!!!! Renting keeps us flexible. Plus I don’t have to deal with the plumbing issue in this house. I just have to live with it until we badger the landlord to pay for fixing it. Or we move.

  66. I earn more now. This is a recent phenomena. I’ve spent the majority of my working career earning a low wage and I grew up in real poverty. My views are grounded firmly in the real life experience of doing without.

    When we bought our first home we earned less than the median in Victoria and had student loans to pay, plus the expenses that go along with small children. Being “house poor” was not something that we complained about. We were just grateful to be able to have a house of our own and willing to do without most everything beyond the basics to have it.

    If we are going to talk scenarios in which people have purchased in the last 5-10 years and have little to show for it at the end of the day then real numbers are going to be helpful. Especially if they qualified for a HELOC.

    Given that the posted scenario is that people are selling, will end up with almost nothing, and are going to use what little they have to “enjoy the finer pleasures in life” my sympathy is not immediately engaged.

    If they want to become renters that might be a totally logical choice. Not everyone wants to maintain a house and the price to rent ratio in Victoria is pretty skewed. The market has been flat for a few years until recently so there may be some truth to the zero equity scenario if they bought a fixer-upper with problems, but without the numbers it is hard to know what is going on and whether there is a better solution.

  67. Yes. I agree.

    I would expect that the folks profiled in the write-up are not particularly good with financial management.

    If they have a HELOC that means they had quite a bit of home equity built up. What was the HELOC spent on? How come it didn’t add equity to their home or value to their investment portfolio?

    Details would help those of us who have bought repeatedly within the same timeframe and are not in this situation have either:

    1. sympathy; or
    2. a remedy.

    Failure to plan or manage money does not push my sympathy buttons. Divorce or death do to quite an extent, particularly divorce as life insurance is readily available. Diapers don’t – you mostly get to plan for that.

  68. If you don’t exercise common sense with money and take on too much debt does it really matter whether you are a homeowner or not? It’s kind of like making $65k/year and driving a $50k car…whether you rent, lease, financing, or buy cash it is a dumb financial move.

    I am now a 5x purchaser in the last 10 years and certainly not regretting anything. Quite happy that I bought my building lot and managed to finish the majority of my home construction before the chaos of the market ensued this year.

    Would not enjoy trying to buy and build right now.

  69. I have bought in the last 5-10 years 3x. I’m not in the situation described. I’d be a terrible case study for the regretsies.

  70. More about money laundering in Vancouver and how BC is attractive to money launderers because of BC’s laws. Most of this was anecdotal evidence months ago, it took a reporter to go out and research the story. Any investigation into money laundering would have to include illegitimate and what is currently “legitimate” loopholes.

    http://www.theglobeandmail.com/report-on-business/economy/housing/the-real-estate-beat/foreign-investors-avoid-taxes-by-buying-real-estate-in-canada/article26683767/

  71. I don’t doubt some of the people you know who bought in the last 5-10 years are struggling David. I figure life is about timing and grasping opportunities. I’ve known people who have timed poorly, what I call our lucky7 pattern, all the way back to 1973…always getting caught up into buying when everyone else is. I feel for them and I agree it shouldn’t be so much about a skill of timing, but then our entire education system fails our youth on so many business levels, not just the psychology of investing…..

    To somewhat diagram what the heck I‘m talking about with the 7 thing…
    7 years up (‘73-80)
    7 years back to flat by ‘87
    7 up
    7 back to flat
    7 up
    7 back to flat
    and now 2015-2022… looks like another 7Up?

    People with bad timing often never fully recover while the person who buys when nobody else is, gets an enormous headstart…each 7Up above for instance sees prices rises about 2 and a half times in a short period.

  72. David is painting the backdrop to the stage. It’s up to us, the actors, to fill that stage with dialogue.

    So what color is the sky in your world?

  73. Is one of your friends willing to post a real life scenario with numbers attached? Difficult to understand what impact personal spending choices are having on these scenarios without a breakdown.

    Some people might well be better off renting but without the numbers it is just opinions based on assumptions.

    I think even a realistic made-up scenario would be better than nothing to analyze but feelings of regret.

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