Perfect Storm?

Yesterday we talked about the Globe and Mail warning you about rising interest rates in an article that suggested ignoring that threat might be the 'biggest financial mistake you might make.'

Today's good news stories come from Business in Vancouver who tell us about a BMO report that says 'Canadian baby boomers  are significantly short on retirement savings'

Baby boomers across Canada have an average shortfall of $430,000 when it comes to their retirement savings, according to BMO Wealth Institute data released August 28.

This is followed up with the wonderful news that 'B.C. consumers still owe the most as personal debt levels rise again.'

The average Canadian consumer’s debt, excluding mortgages, increased in 2013’s second quarter to $27,131, according to a TransUnion report released this morning (August 28).

High debt? No savings for retirement?  Good thing many of us have been playing the real estate lottery, eh?

Which brings to mind our post back in March 2012 warning about Boomer's dumping their overvalued real estate to fund retirement and subsequent posts from Macleans and BMO who ruminated on similar concerns.

But Flippers don't have to worry about that (unless they've ignored the warnings and are currently caught holding), right?

Not so fast.

We also find out today that Tax auditors have targeted condo sellers in the hunt for ‘flippers’.

Seems that anyone who bought a condo unit pre-construction, then sold for a profit without actually moving in, is liable for capital gains tax, and must also repay the GST/HST refund that residents receive.

Folks who’ve sold condos or houses less than a year after taking possession seem to be the prime focus of CRA auditors so far, but tax lawyers are advising clients they could be at risk of a tax bill for at least 50 per cent of any gains made if they’ve sold before living in the property 18 months to two years.

Isn't that special?

Toss in the array of changing mortgage regulations, the weak global economy and the absence of HAM and surely the logical person can see the perfect storm forming.

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In the years ahead: the biggest financial mistake you might make?

Couldn't help but key in on a line from a Globe and Mail article this week.

In the years ahead, the biggest financial mistake you make just might be failing to think well in advance about a mortgage coming up for renewal.

It is, of course, an article about the damage rising interest rates might do to those in debt.

The era of pleasant surprises for people renewing their mortgages is over.

After five years of trending lower, mortgage rates have reversed course and started to rise. Aspiring first-time home buyers are being priced out of the market by these increases, but at least they’ve avoided a costly mortgage entanglement. Existing homeowners may simply have to pay more.

... how people will afford higher mortgage payments (?)

We’ve been assured by people in the mortgage industry that homeowners can absorb higher mortgage payments. A 2011 report from the Canadian Association of Accredited Mortgage Professionals said there is “very substantial room” for households to pay higher mortgage rates. Will Dunning, CAAMP’s chief economist, said Monday that he stands by that view.

But the issue is not whether you can afford higher mortgage payments. Rather, it’s what you’ll have to sacrifice to make them.

Sacrifice?

The mere thought is still ridiculous to just about everyone you talk to.  No one can conceive of any kind of dramatic change in rates.

But it's always like that.  

In October 1971, when interest rates were 9.55%...

... people of the day would have thought you were crazy if you were to suggest they would be 20.54% by October of 1981.

Conversely, it you were to tell those people in 1979-1981 that interest rates would have plummeted to 13.75% by October of 1990, they wouldn't have believed you (although they would have cheered the optimism).

Jump 10 more years into the future to October 2000 and rates are an astonishing bargain at 8.08%....

... at least they would have been a bargain to the people of the day.

Jump just over 10 more years to the present, and what to make of the emergency level interest rates of 2.25 -3.25%? Talk to anyone today and the idea of a 6% interest rate is pure fantasy, never mind 8.08%.

If you look at history, the 10 year jumps have brought dramatic change... change which each generation would not have believed at the time.

If the next 10 years brings change again, will it surprise? More significantly, will you allow yourself to be surprised?

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Netherlands Real Estate Bubble Bursts - BBC

ht - Ben Rabidoux

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Email: village_whisperer@live.ca
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Will Return Shortly

Hello all.  

Thanks for all the emails enquiring as to the recent prolonged absence. It never ceases to amaze just how many stop by this little corner of the internet each day.

And while emails (and comments) may have gone unanswered, they are all read - and appreciated. Thank you for taking the time.

Hopefully regular posts will resume shortly.

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Email: village_whisperer@live.ca
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