Canadians have been gorging themselves on debt for the past decade. Far higher than other OCED countries. That's left them in a very precarious situation.[1]
[1]https://www.cnbc.com/2017/11/24/canadas-household-debt-level...
[1]https://www.cnbc.com/2017/11/24/canadas-household-debt-level...
https://www.investorsfriend.com/canadian-GDP-canadian-import...
If you don't work and spend 30k on rent, food, utilities, etc., then you get 30k deeper into debt every year. Even if there's no tuition.
Why not compare public to public?
https://www.insider.com/college-canada-us-differences-2018-1...
Who sells them housing? Other Canadians.
Why do they go into so much debt? Because the nature of housing is that rising prices will squeeze out every last cent of saved money from the pockets of people trying to buy their first house.
It boggles my mind that the average house in Vancouver or Toronto costs ~20 years of average wages (Assuming you don't eat, sleep under a bridge, and don't pay any taxes.)
20 years worth of labour sure as hell did not go into building it. It's all land speculation.
In the meantime, inflation-adjusted housing prices more than doubled. Pretty much everyone and everyone would have been better off not following your advice.
And today, in 2019 there is still no clear transition path out of the current horrorshow that is the property market. Prices are not coming down, nobody sees any mechanism by which they might come down, and too many people have too much invested in land for the government to ever encourage prices to come down.
When you rent, you are seriously gambling that property prices will not keep rising. When you own, you are seriously gambling that property prices will not fall.
The thing is, there are enormous political and economic pressures to create policies that prevent property prices from falling. As a renter, you are placing a bet against these incredibly powerful forces. It doesn't even matter if you're right - the markets may remain irrational longer than you can remain solvent.
Edit: Obviously there are complications to this. Buying and selling a house is stressful, time-intensive, and expensive. If you're only going to be in an area for 5 years, it's not as smart an idea as buying one with the intent to stay for 45 years. Obviously, it's possible that a generational shift in demographics will result in a property crash... But it's just as likely that increased immigration will offset that shift. Obviously, your city's financial situation, and likely future changes to property taxes will have an effect... The list goes on.
Housing, on average, rises at the rate of inflation (it's closely linked to the cost of new construction), per Robert Shiller's research. Even if the housing market explodes in one area, there's almost certainly another area where it hasn't (normally one without restrictions on new construction-San Fransisco being a prime example of a place where housing prices have skyrocketed due to such restrictions).
> Housing, on average, rises at the rate of inflation
I don't care about the price of the average house in the country. I care about the price of a house within a commuting distance of where I can find gainful employment.
Right now, the prices of homes in those areas are skyrocketing, while the prices of homes in areas that don't have gainful employment are nosediving. Take the average, and you'll find that it tracks inflation... And is a worthless metric.
> Even if the housing market explodes in one area, there's almost certainly another area where it hasn't
Yes, and none of those areas are ones where young people can make a living.
The socially optimal thing would of course be for retirees to consider selling their million-dollar coastal metro homes and move to cheaper areas, like the interior. But as long as they have access to HELOCs, they don't feel any pressure to do them. They can just borrow money against their million-dollar home, instead of downsizing. This is also not going anywhere. It would be political suicide to force grandma and grandpa to move to the boonies, just so that their grandkids, who need to work in the city could afford to live in it.
I really didn't like it for several reasons, but not too long ago I briefly lived inside the DC beltway and had a 10 minute commute to work, and paid $1000/month for half a 2 bedroom apartment in a mid-rise that was pretty decent.
In seriousness, not all metro areas have seen the same huge rise in rents and property values. I can personally vouch that the Baltimore-DC region offers relatively high paying jobs and housing that is adorable given those incomes. I've heard San Antonio, TX is also good on the jobs to housing costs front.
I hope you end up in a place where you can start building some financial security.
Also, run the numbers on long term renting in areas where housing prices are high. There's sometimes a high opportunity cost to having a ton of your savings stuck in the down payment for a house when you could otherwise have it invested in low cost index funds or something similar.
Where I live, my rent was essentially 2/3rds of my gross income, but I found a place to buy for about 5 times my yearly wages and either way, I'm under 10 minutes from work.
BoC staff add that, “Home equity extraction may also be concealing emerging financial distress if borrowers are taking equity out of their homes to manage other debt obligations or to finance their daily expenses because they lack other sources of funds.”
[1]https://www.ratespy.com/heloc-growth-isnt-what-everyone-thou...
Young people are screwed by having to go into debt to buy overpriced homes from retirees who are selling (or people selling their starter home, to trade up.)
Retirees who aren't selling are using the equity in their overpriced homes to live lavishly. Their debt isn't a social problem, because they never intend to pay it down while they remain in their home. Instead, they will die or downsize, their home will be sold, and the HELOC will be paid off.
The former group is getting screwed, and is going heavily into debt because of land speculation. The latter group is living it up, and reaping the windfall. Unlike young people, they always have the option to sell, and move to a low-cost of living area that has no jobs.
It's the bank's problem, then, isn't it? They're predictably going to default. Why is their bank willing to buy equity in their home? It'd be like buying equity in a company that has declared its intent to shut down.
If you're sleeping under a bridge, are you renting out the home you've bought? If so, won't that recoup your costs sooner?
Edit - also secured loans are less risky than unsecured loans. Your article includes housing in 'debt'.
But a huge number of Canadians being underwater on their mortgage will make for a drastic decrease in consumer spending, which may trigger a recession...
Yes - if a billionaire borrower buys a $200,000 house with a mortgage, there is little repayment risk for both borrower and banks. The mortgage payments are unlikely to stress the borrower.
No - that risk can be distributed between bank and borrower. Bank provides 75% of the value of the house, so it takes more risk. However, it can reduce risk in variety of ways, including: 1) taking collateral, 2) taking a guarantee from borrower, 3) diversification, 4) off loading risk to 3rd parties.
Neutral side is generally considered "best effort" in the axis.
And if there's a crisis large enough that solvency of CMHC might be questionable, they don't have to worry either because the bank of Canada will gladly buy their mortgages, passing the risk onto taxpayers.
https://www.macleans.ca/economy/business/the-real-canadian-b...
Public policy and investment in housing for ordinary people while allowing the mega elite to extract as much wealth for themselves. The non-elite then use debt to maintain their standards of living.
It seems to me that this difference favors landlords over owner-occupants when it comes to buying property [which does not seem to be beneficial public policy]. With interest rates as low as they are, this is maybe only a medium-sized problem, but when interest rates rise again, this is likely going to exacerbate the difficulty of people beginning their home ownership "ladder" because landlords can literally outbid them by the difference in tax policy.